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Accounting Ch.3
Accounting
| Question | Answer |
|---|---|
| Accounting period | Length of time covered by financial statements; also called reporting period. |
| Accrual basis accounting | Accounting system that recognizes revenues when earned and expenses when incurred; the basis for GAAP. |
| accrued expenses | Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities. |
| accrued revenues | Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenues. |
| adjusted trail balance | List of accounts and balances prepared after period-end adjustments are recorded and posted. |
| adjusting entry | Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account. |
| annual financial statements | Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable. |
| book value | Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account. |
| cash basis accounting | Accounting system that recognizes revenues when cash is received and records expenses when cash is paid. |
| Contra account | Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance. |
| Depreciation | Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset. |
| Expense recognition (or matching) principle | aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses. |
| Fiscal year | Consecutive 12-month (or 52-week) period chosen as the organization's annual accounting period. |
| Interim financial statements | Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods. |
| Natural business year | Twelve-month period that ends when a company's sales activities are at their lowest point. |
| Plant assests | Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets. |
| Prepaid expenses | Items paid for in advance of receiving their benefits; classified as assets. |
| Profit margin | Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin |
| Straight-line depreciation method | Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life. |
| Time period assumption | Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years. |
| Unadjusted trial balance | List of accounts and balances prepared before accounting adjustments are recorded and posted. |
| Unearned revenues | Liability created when customers pay in advance for products or services; earned when the products or services are later delivered. |
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