Chapter 4: Accrual Accounting Concepts Flashcards
accrual-basis accounting
accounting basis in which companies record, in the periods in which the events occur; transactions that change a company’s financial statement, even if cash was not exchanged.
accrued expenses
expenses incurred but not yet paid in cash or recorded.
accured revenues
revenues for services performed but not yet received in cash or recorded.
adjusted trial balance
a list of accounts and their balances after all adjustments have been made.
adjusting entries
entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed.
book value
the difference between the cost of a depreciable asset and its related accumulated depreciation.
cash-basis accounting
accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.
closing entries
entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholder’s equity account, retained earnings.
contra asset account
an account that is offset against an asset account on the balance sheet.
depreciation
the process of allocating the cost of an asset to expense overs its useful life.
earnings managements
the planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.
expense recognition principle (matching principle)
the principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.
fiscal year
an accounting period that is one year long.
income summary
a temporary account used in closing revenue and expense accounts.
periodicity assumption
an assumption that the economic life of a business can be divided into artificial time periods.
permanent accounts
balance sheet accounts whose balances are carried forward to the next accounting period.
post-closing trial balance
a list of permanent accounts and their balances after a company has journalized and posted closing entries.
prepaid expenses (prepayments)
expenses paid in cash before they are used or consumed.
quality of earnings
indicates the level of full and transparent information that a company provides to users of its financial statements.
revenue recognition principle
the principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.
reversing entry
an entry made at the beginning of the next accounting period;the exact opposite of the adjusting entry made in the previous period.
temporary accounts
revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.
unearned revenues
cash received and a liability recorded before services are performed.
useful life
the length of service of a productive asset.
worksheet
a multiple-column form that companies may use in the adjustment process and in preparing financial statements.
