Accounting Chapter 3

Front 1

account format

Back 1

a blance-sheet format that lists assets on the left and liabilities and stockholders' equity on the right

Front 2

accrual

Back 2

an expense or revenue that occurs before the business pays or receives cash. an accrual is the opposite of a deferral

Front 3

accrual accounting

Back 3

accounting that records the impact of a business event as it occurs, regarless of whether the transaction affected cash

Front 4

accrued expense

Back 4

an expense incurred but not yet paid in cash

Front 5

accrued revenue

Back 5

a revenue that has been earned but not yet received in cash

Front 6

accumulated depreciation

Back 6

the cumulative sum of all depreciation expense from the date of acquiring a plant asset

Front 7

adjusted trial balance

Back 7

a list of all the ledger accounts with their adjusted balances

Front 8

book value (of a plant asset)

Back 8

the assets' cost minus accumulated depreciation

Front 9

cash-basic accounting

Back 9

accounting that records only transactions in which cash is received or paid

Front 10

classified balance sheet

Back 10

a balance sheet that shows current assets separate from long-term assets, and current liabilities separate from long-term liabilities

Front 11

closing the books

Back 11

process of preparing the accounts to begin recording the enxt period's transactions. closing the accounts consists of journalizng and posting the closing entries to set the balances of the revenue, expense and dividends accuonts to zero. also called closing the accounts

Front 12

closing entries

Back 12

entries that transfer the revenue, expense, and dividends balances from these respective accounts to the Retained Earnings account

Front 13

contra account

Back 13

an accuont that always has a companion account and whose normal balance is opposite that of the companion account

Front 14

current asset

Back 14

an asset that is expected to be converted to cash, sold, or consumed during the next 12 montsh, or within the business's normal operating cycle if longer than a year

Front 15

current liability

Back 15

a debt due to be paid within one year or within the entity's operating cycle if the cycle is longer than a year

Front 16

current ratio

Back 16

current assets divided by current liabilities. measures a company's ability to pay current liabilities with current assets

Front 17

debt ratio

Back 17

ratio of total liabilities to total assets. states the proportion of a company's assets that is financed with debt

Front 18

deferral

Back 18

an adjustment for which the business paid or received cash in advance. examples include prepaid rent, prepaid insurance, and supplies

Front 19

depreciation

Back 19

allocation of the cost of plant asset to expense over its useful life

Front 20

liquidity

Back 20

measure of how quickly an item can be converted to cash

Front 21

long-term asset

Back 21

an asset that is not a current asset

Front 22

long-term liability

Back 22

a liability that is not a current liability

Front 23

matching principle

Back 23

basis for recording expenses. directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during that same period

Front 24

multi-step income statement

Back 24

in come statement that contains subtotals to highlight important relationships between revenues and expenses

Front 25

operating cycle

Back 25

time span during which cash is paid for goods and services that are sold to customers who pay the business in cash

Front 26

permanent accounts

Back 26

asset, liability and stockholders' equity accounts that are not closed at the end of the period

Front 27

plant assets

Back 27

long-lived assets, such as land, buildings and quipment, used in the operation of the business. also called fixed assets

Front 28

prepaid expense

Back 28

a category of miscellaneous assets that typically expire or get used up in the near future. examples include prepaid rent, prepaid insurance, and supplies

Front 29

report format

Back 29

a balance-sheet format that lists assets at the top, followed by liabilities and stockholders' equity below

Front 30

revenue principle

Back 30

the basis for recording revenues; tells accountants when to record revenue and the amount of revenue to record

Front 31

single-step income statement

Back 31

an income statement that lists all the revenues together under a heading such as Revenues or Revenues and Gains. Expenses appear in a separate category called Expenses or perhaps Expenses and Losses

Front 32

temporary accounts

Back 32

the revenue and expense accounts that relate to a limited period and are closed at the end of the period are temporary accounts. for a corporation, the Dividends account is also temporary

Front 33

time-period concept

Back 33

ensures that accounting info is reported at regular intervals

Front 34

unearned revenue

Back 34

a liability created when a business collects cahs from customers in advance of earning the revenue. the obligation is to provide a product or a service in the future