Principles Of Accounting - Chapter 3 Terms

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Accrual Basis Accounting

Back 1

Accounting that records revenue when earned and expenses when incurred to produce those revenues; recognizes the impact of transactions as they occur regardless of whether they involve a transfer of cash.

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Accruals

Back 2

Revenue earned or expenses incurred before cash has been exchanged.

Front 3

Accumulated Depreciation

Back 3

A contra-asset account that holds the cumulative sum of all depreciation recorded for an asset.

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Adjusted Trial Balance

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A list of all the accounts of a business with their adjusted balances.

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Adjusting Entry

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Entry made at the end of the accounting period to measure the period's income accurately and bring the related asset and liability accounts to correct balance before the financial statements are prepared.

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Book Value

Back 6

The asset's cost minus its accumulated depreciation. Also called carrying value.

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Carrying Value

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The asset's cost minus its accumulated depreciation. Also called book value.

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Contra-Asset

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An account that always has a companion account and whose normal balance is opposite that of the companion account.

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Deferrals

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Cash received or paid before revenues have been earned or expenses have been incurred.

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Deferred Revenue

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A liability created when a business collects cash from customers in advance of providing goods or services. Also called unearned revenue.

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Depreciation

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Allocation of the cost of a long-term asset to expense over its useful life.

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Fiscal Year

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Any consecutive, 12-month period that a business adopts as its accounting year.

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Fiscal Year-End (FYE)

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The ending date of a business's fiscal year.

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Long-Term Assets

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Long-lived, tangible assets such as land, buildings, equipment, and furniture, used in the operation of a business lasting for more than a year.

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Matching Principle

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Recording expenses in the time period they were incurred to produce revenues, thus matching them against the revenues earned during that same period.

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Straing-Line Depreciation

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A method of estimating depreciation: (COST OF ASSET - SALVAGE VALUE) / USEFUL LIFE OF ASSET

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Revenue Recognition Principle

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Recording revenues when they are earned by providing goods or services to customers.

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Time Period Concept

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Accounting periods must be of equal length so that income measurement is comparable from one period to another; ensures that information is reported at regular intervals.

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Unearned Revenue

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A liability created when a business collects cash from customers in advance of providing goods or services. Also called deferred revenue.

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Worksheet

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A document holding the trial balance, adjustments, and adjusted trial balance of a business and is used to prepare financial statements.