Chapter 3 Vocabulary

Question 1

accounting period concept

Answer 1

assumes economic life of business can be divided into time periods

Question 2

accrual basis of accounting

Answer 2

revenues are reported on the income statement in the period in which they are earned

Question 3

revenue recognition concept

Answer 3

cash may or may not be received from customers during this period

Question 4

matching concept/principle

Answer 4

expenses matched with revenues generated during period by those expenses

Question 5

cash basis of accounting

Answer 5

revenues and expenses are reported on the income statement in the period in which cash is received or paid

Question 6

adjusting process

Answer 6

analysis and updating of accounts at the end of the period before the financial statements are prepared

Question 7

adjusting entries

Answer 7

journal entries that bring the accounts up to date at the end of the accounting period

Question 8

prepaid expenses

Answer 8

advance payment of future expenses and are recorded as assets when cash is paid

Question 9

unearned revenues

Answer 9

advance receipt of future revenues and are recorded as liabilities when cash is received

Question 10

accrued revenues

Answer 10

unrecorded revenues that have been earned and for which cash has yet to be received

Question 11

accrued expenses

Answer 11

unrecorded expenses that have been incurred and for which cash has yet to be paid

Question 12

depreciation

Answer 12

decrease in usefulness

Question 13

depreciate

Answer 13

fixed assets lose their usefulness

Question 14

depreciation expense

Answer 14

as a fixed asset depreciates, the portion of its cost should be recorded as an expense

Question 15

accumulated depreciation

Answer 15

deducted from their related fixed asset accounts on the balance sheet

Question 16

net book value

Answer 16

cost-accumulated depreciation

Question 17

vertical analysis

Answer 17

comparing each item in a financial statement with a total amount from the same statement