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Flashcards in Chapter 3 Deck (18):
1

Cash Basis Accounting

Accounting method that records revenues only when cash is received and expenses only when cash is paid. (Not allowed under GAAP)

2

Accrual Basis Accounting

Accounting method that records revenues when earned and expenses when incurred.

3

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.

4

fiscal year

An accounting year of any 12 consecutive months that may or may not coincide with the calendar year.

5

revenue recognition principle

Requires companies to record revenue when (or as) the entity satisfies each performance obligation.

6

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.

7

Adjusting Entry

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.

8

Deferred Expense

An asset created when a business makes advance payments of future expenses

9

Property, Plant, and Equipment

Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.

10

Depreciation

The process by which businesses spread the allocation of a plant asset's cost over its useful life.

11

Residual Value

The expected value of a depreciable asset at the end of its useful life.

12

Straight-Line Method

A depreciation method that allocates an equal amount of depreciation each year. (Cost - Residual value) / Useful life

13

Accumulated Depreciation

The sum of all the depreciation expense recorded to date for a depreciable asset.

14

Contra Account

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.

15

Book Value

A depreciable asset's cost minus accumulated depreciation

16

Deferred Revenue

A liability created when a business collects cash from customers in advance of completing a service or delivering a product.

17

Accrued Expense

An expense that the business has incurred but has not yet paid.

18

Accrued Revenue

A revenue that has been earned but for which the cash has not yet been collected.