Chapter 3: Vocab Flashcards
accounting period concept
Requires that revenues and expenses be reported in the proper period.
accrual basis of accounting
The basis from which the proper period to record a transaction is determined.
revenue recognition concept
Requires that revenue be recorded when services are provided to customers.
matching concept
The accounting concept supporting reporting revenues and related expenses in the same period.
cash basis of accounting
Revenues and expenses are reported on the income statement in the period in which cash is received or paid. Small service businesses may use the cash basis.
adjusting process
The analysis and updating of accounts at the end of the period before the financial statements are prepared.
adjusting entries
The journal entries that bring the accounts up to date at the end of the accounting period.
prepaid expenses
The advance payment of future expenses and are recorded as assets when cash is paid.
accrued expenses
Unrecorded expenses that have been incurred and for which cash has yet to be paid.
fixed assets
Also known as plant assets. The physical resources that are owned and used by a business and are permanent or have a long life.
depreciation
As time passes, some fixed assets lose their ability to provide useful services. Depreciation is the decrease in usefulness.
depreciation expense
The portion of the cost of an asset that has depreciated recorded as an expense.
accumulated depreciation
The adjusting entry to record depreciation expense.
contra accounts
An account whose normal balance is opposite to the account from which it is deducted. If an account’s normal balance is a debit, it’s contra account will be a credit.
book value of the asset
Also known as net book value. The value of accumulative depreciation of its fixed asset subtracted from the original cost of the asset.
