Financial Accounting Ch. 3

Front 1

Accrual Accounting

Back 1

Required by GAAP
Companies must measure and report accounting transactions without the necessity that
cash has been received or paid

Front 2

Accrual Accounting Principles

Back 2

Revenue Recognition
Expense Recognition (matching)

Front 3

Revenue Recognition Principle

Back 3

Revenue is recognized when earned

Front 4

Expense Recognition (Matching)

Back 4

Expenses incurred to generate revenue are
recognized (matched) in the same time period
May occur at the same time, before, or after

Front 5

Types of Adjustments

Back 5

Prepaid Expenses
Unearned Revenue
Accrued Expenses
Accrued Revenues

Front 6

Prepaid Expenses

Back 6

Allocating previously recorded assets to expense

Front 7

Unearned Revenue

Back 7

Allocating previously recorded unearned
revenue to earned revenue

Front 8

Accrued Expenses

Back 8

Recording operating expenses that have
not yet been paid or recorded

Front 9

Accrued Revenues

Back 9

Recording revenue that has been earned,
but not yet been received or recorded

Front 10

Order of Financial Statements

Back 10

1. Income Statement
2. Statement of Stockholders’ Equity
3. Balance Sheet
4. Statement of Cash Flows

Front 11

Permanent Accounts

Back 11

accounts whose balances carry over from one accounting period to the next

Front 12

Temporary Accounts

Back 12

used to gather information for a particular accounting period and then reset to zero by transferring the balance to a permanent account (Retained Earnings)

Front 13

Quality of Accounting Numbers

Back 13

The degree to which a company’s financial statements reflect its true financial condition and performance