Accounting Ch 2

Front 1

accounts receivable

Back 1

Expected future cash receipts arising from permitting customers to buy now and pay later; typically relatively small balances due within a short time period.

Front 2

accrual

Back 2

Accounting recognition of revenue or expense in a period before cash is exchanged.

Front 3

accrual accounting

Back 3

Accounting system which recognizes revenues when earned and expenses when incurred regardless of when the related cash is exchanged.

Front 4

adjusting entry

Back 4

Entry that updates account balances prior to preparing financial statements; a bookkeeping tool. Adjusting entries never affect the Cash account.

Front 5

American Institute of Certified Public Accountants (AICPA)

Back 5

National association that serves the educational and professional interests of members of the public accounting profession; membership is voluntary.

Front 6

asset exchange transaction

Back 6

A transaction, such as the purchase of land with cash, that decreases one asset and increases another asset; total assets remain unchanged

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asset source transaction

Back 7

A transaction that increases both an asset and a claim on assets; the three types of asset source transactions are acquisitions from owners (equity), borrowings from creditors (liabilities), or earnings from operations (revenues).

Front 8

asset use transaction

Back 8

A transaction that decreases both an asset and a claim on assets; the three types of asset use transactions are distributions (transfers to owners), liability payments (to creditors), or expenses (costs incurred to operate the business).

Front 9

carrying value

Back 9

Face amount of a bond liability less any unamortized bond discount or plus any unamortized bond premium.

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claims exchange transaction

Back 10

A transaction that decreases one claim and increases another claim; total claims remain unchanged. For example, accruing interest expense is a claims exchange transaction; liabilities increase, and the expense recognition decreases retained earnings.

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Code of Professional Conduct

Back 11

Guidelines established by the American Institute of Certified Public Accountants (AICPA) to promote ethical con-duct among certified public accountants; AICPA members agree to adhere to this code, which goes beyond legal requirements.

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conservatism

Back 12

A principle that guides accountants in uncertain circumstances to select the alternative that produces the lowest amount of net income.

Front 13

cost

Back 13

An amount paid to acquire a resource (asset) or to pay for a resource that has been consumed. Incurring a cost results in an asset exchange or expense recognition.

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deferral

Back 14

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

Front 15

depreciation expense

Back 15

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

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expense

Back 16

An economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenue.

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internal controls

Back 17

Policies and procedures companies establish to provide reasonable assurance of reducing fraud, providing reliable accounting records, and accomplishing organization objectives.

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matching concept

Back 18

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).

Front 19

opportunity

Back 19

An element of the fraud triangle that recognizes weaknesses in internal controls that enable the occurrence of fraudulent or unethical behavior.

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period costs

Back 20

Expenses recognized in the period in which they are incurred regardless of when cash payments for them are made ; costs that cannot be directly traced to products.

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prepaid items

Back 21

Deferred expenses. An example is prepaid insurance.

Front 22

pressure

Back 22

An element of the fraud triangle that recognizes conditions that motivate fraudulent or unethical behavior.

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rationalization

Back 23

An element of the fraud triangle that recognizes a human tendency to justify fraudulent or unethical behavior.

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realization

Back 24

Accounting term that usually refers to actual cash collection (e.g., collecting accounts receivable).

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recognition

Back 25

Reporting an accounting event in the financial statements.

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revenue

Back 26

The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers.

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salaries payable

Back 27

Amounts owed but not yet paid to employees for services they have already performed.

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salvage value

Back 28

Expected selling price of an asset at the end of its useful life.

Front 29

straight-line depreciation

Back 29

Depreciation computations that produce equal amounts of depreciation to allocate to expense each period over an asset’s life; computed by subtracting the salvage value from the asset’s cost and then dividing by the number of years of useful life.

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unearned revenue

Back 30

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

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useful life

Back 31

The period of time over which an asset is expected to be used in the normal operation of a business.

Front 32

vertical statements model

Back 32

Concurrent representation of several financial statements shown vertically on a page.