Ch 4 Vocabulary Flashcards
(20 cards)
Accrual basis accounting
an accounting basis in which transactions that change a company’s financial statements are recorded in the periods in which the company receives or pays cash. p 164
Accrued Expenses
Expenses incurred but not yet paid in cash that are recorded at the end of the period by an adjusting entry. p 177
Accrued revenues
Revenues earned by not yet received in cash that are recorded at the end of an accounting period by an adjusting entry. p 175
Adjusted trial balance
a list of accounts and their balances after all adjustments have been made. p 183
Adjusting entries
Journal entries made at the end of an accounting period to update the accounts to ensure the proper recognition of revenues and expenses. p 167
Carrying amount
(also known as book value) The difference between the cost of a depreciable asset and its accumulated depreciation. p 172
Cash basis accounting
An accounting basis in which revenue is recorded only when cash is received, and an expense is recorded only when cash is paid. p 165
Closing entries
Entries at the end of an accounting period to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the permanent shareholder’s equity account Retained Earnings. p 188
Depreciation
(also known as amortization) The process of allocating the cost of a depreciable asset (for example, buildings and equipment) over its useful life. p 171
Expense recognition
The process of recording an expense when there is a decrease in future economic benefits related to a decrease in an asset or an increase in a liability in the course of ordinary activities that can be measured reliably. When there is a direct association between the expenses incurred and the generation of revenue, expenses (effort) are matched with revenues (results) p 164
Income summary
a temporary account used in closing revenue and expense accounts p 188
Permanent accounts
Statement of financial position accounts whose balances are carried forward to the next accounting period. p 187
Post-closing trial balance
A list of permanent accounts and their balances after closing entries have been journalized and posted. p 190
Prepaid expenses
Expenses that are generally paid in cash and recorded as assets before they are used. p 169
Revenue recognition
The concept that revenue is generally considered to be earned (recognized) when goods or services are exchanged for cash or claims to cash (such as accounts receivable), which results in an increase in future economic benefits. In addition, three conditions must be met: (1) the sales or performance effort substantially complete, (2) revenue amount determinable, and (3) collection reasonably assured. p 163
Straight-line method of depreciation
A depreciation method in which depreciation expense is calculated as the cost of an asset divided by its useful life. p 171
Temporary accounts
Revenue, expense, and dividend accounts whose balances are transferred to Retained Earnings at the end of an accounting period. p 187
Unadjusted trial balance
A list of accounts and their balances before adjusting entries have been made. p 168
Unearned revenues
Cash that is received before revenue is earned and is therefore recorded as a liability until it is earned p 173
Useful Life
The length of service of a depreciable asset. p 171
