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accounting 4-6

chapter 4

QuestionAnswer
accrue to grow or accumulate over time, for example, interest expense
accumulated depreciation a contra asset account shown as a deduction from the related asset account in the balance sheet. Depreciation taken throughout the useful life on an asset is accumulated in this account
adjusted trial balance A schedule indicating the balances in ledger accounts after end-of-period adjusting entries have been posted. The amounts shown in the adjusted trial balance are carried directly in to financial statements
adjusting entries entries made at the end of the accounting period for the purpose of recognizing revenue and expenses that are not properly measured as a result of journalizing transactions as they occur
book value the net amount at which an asset appears in financial statements. for depreciable assets book value represents cost minus accumulated depreciation. also called carrying value.
contra-asset account an account with a credit balance that is offset against or deducted from an asset account to produce the proper balance sheet amount for the asset
depreciable assets physical objects with a limited life. the cost of these assets is gradually recognized as depreciation expense.
depreciation the systematic allocation of the cost of an asset to expense during the periods of its useful life.
immaterial something of little or no consequence. immaterial items may be accounted for in the most convenient manner, without regard to other theoretical concepts
matching principle the accounting principle of offsetting revenue with the expenses incurred in producing that revenue. Requires recognitiong of expenses in the periods that the goods and services are used in the effort to produce revenue
prepaid expenses assets representing advance payment of the expenses of future accounting periods.
realization principle the accounting principle that governs the timing of revenue recognition.
straight line method of depreciation widely used approach of recognizing an equal amount of depreciation expense in each period of a depreciable asset's useful life
unearned revenue obligation to deliver goods or render services in the future, stemming from the receipt of advance payment
useful life the period of time that a depreciable asset is expected to be useful to the business
4 basic types of adjusting entries 1. convert assets to expenses. 2. convert liabilities to revenue. 3) accrue unpaid expenses. 4) accrue uncollected revenue
Created by: gpolite