Financial Accounting Chapter 3 Terms

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accrual-basis accounting
accounting basis in which companies record transactions that change a company’s financial statements in the periods in which the events occur
adjusting entries for either accrued revenues or accrued expenses
accrued expenses
expenses incurred but not yet paid in cash or recorded
Debit: Expense
Credit: Liabilities
accrued revenues
revenues for services performed but not yet received in cash or recorded
Debit: Asset
Credit: Liabilities
adjusted trial balance
a list of accounts and their balances after the company has made all adjustments
adjusting entries
entries made at the end of an accounting period to ensure that companies follow the revenue recognition and expense recognition principles
book value
the difference between the cost of a depreciable asset and its related accumulated depreciation
calendar year
an accounting period that extends from January 1 to December 31
cash-basis accounting
accounting basis in which companies record revenue when they receive cash and an expense when they pay cash
contra asset account
an account offset against an asset account on the balance sheet
adjusting entries for either prepaid expenses or unearned revenues
the process of allocating the cost of an asset to expense over its useful life
expense recognition principle
(matching principle) the principle that companies match efforts (expenses) with accomplishments (revenues)
fiscal year
an accounting period that is one year in length
interim periods
monthly or quarterly accounting time periods
prepaid expenses
(prepayments) expenses paid in cash before they are used or consumed
Debit: Expense
Credit: Asset
revenue recognition principle
the principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied
time period assumption
an assumption that accountants can divide the economic life of a business into artificial time periods
unearned revenues
a liability recorded for cash received before services are performed
Debit: Liabilities
Credit: Revenue
useful life
the length of service of a long-lived asset
Categories: Financial Accounting