Acct 203 - Chp 3

Front 1

accumulated depreciation

Back 1

Contra asset account that shows the sum of all depreciation expense recognized for an asset since the date of acquisition. pp. 124, 449

Front 2

allocation

Back 2

Recognizing expense by systematically assigning the cost of an asset to periods of use. p. 121

Front 3

book value

Back 3

Historical (original) cost of an asset minus accumulated depreciation to date. pp. 124, 450

Front 4

Capitalized

Back 4

Initially recorded an expenditure in an asset account for subsequent transfer to expense as the asset is used to produce revenue. p. 140

Front 5

Concept of materiality

Back 5

reporting of many insignificant items which may cause inaccuracies in financial reporting

Front 6

Contra asset account

Back 6

Account used to reduce the reported value of the asset to which it relates; e.g., subtracting the contra asset Allowance for Bad Debts from Accounts Receivable reduces receivables to their net realizable value. pp. 124, 449

Front 7

debt to assets ratio

Back 7

Financial measure of a company's level of risk, calculated as total debt divided by total assets. p. 137

Front 8

deferral

Back 8

Accounting recognition of revenue or expense in a period after cash is exchanged. p. 121

Front 9

depreciation expense

Back 9

Portion of the original cost of a long-term tangible asset allocated to an expense account in a given period. p. 124

Front 10

financial leverage

Back 10

Principle of increasing earnings through debt financing by investing money at a higher rate than the rate paid on the borrowed money. pp. 138, 520

Front 11

matching concept

Back 11

Accounting principle of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: match expenses directly with revenues (e.g. cost of goods sold); match expenses to the period in which they are incurred (e.g. rent expense), and match expenses systematically with revenues (e.g. depreciation expense). pp. 71, 126

Front 12

return on assets ratio

Back 12

relationship between the level of income and the size of the investment (net income/total assets)

Front 13

return on equity ratio

Back 13

relationship between net income and the stockholder's equity (net income/stockholders' equity)

Front 14

straight-line method

Back 14

Allocation method that produces equal amounts in each accounting period.

Front 15

systematic allocation of cost

Back 15

Process of allocating the cost of an asset to expense over several accounting periods in an orderly manner. p. 127

Front 16

unearned revenue

Back 16

Liability arising when customers pay cash in advance for services a business will perform in the future. p. 122