Cash Basis Accounting
Accounting method that records revenues only when cash is received and expenses only when cash is paid. (Not allowed under GAAP)
Accrual Basis Accounting
Accounting method that records revenues when earned and expenses when incurred.
Time Period Concept
Assumes that a business's activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.
An accounting year of any 12 consecutive months that may or may not coincide with the calendar year.
revenue recognition principle
Requires companies to record revenue when (or as) the entity satisfies each performance obligation.
The Matching Principle
Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period.
An entry made at the end of the accounting period that is used to record revenues to the periods in which they are earned and expenses to the period in which they occur.
An asset created when a business makes advance payments of future expenses
Property, Plant, and Equipment
Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.
The process by which businesses spread the allocation of a plant asset's cost over its useful life.
The expected value of a depreciable asset at the end of its useful life.
A depreciation method that allocates an equal amount of depreciation each year. (Cost - Residual value) / Useful life
The sum of all the depreciation expense recorded to date for a depreciable asset.
An account that is paired with, and is listed immediately after, its related account in the chart of accounts and associated financial statement and whose normal balance is the opposite of the normal balance of the related account.
A depreciable asset's cost minus accumulated depreciation
A liability created when a business collects cash from customers in advance of completing a service or delivering a product.
An expense that the business has incurred but has not yet paid.
A revenue that has been earned but for which the cash has not yet been collected.