Chapter 3: Adjusting the Accounts

  1. Accrual-basis Accounting
    A basis for accounting in which revenues are recorded when earned and expenses are recorded when incurred.
  2. Accruals
    Adjusting entries for either accrued revenues or accrued expenses.
  3. Accrued expenses
    Expenses incurred but not yet paid in cash or recorded.
  4. Accrued Revenues
    Revenues earned but not yet received in cash or recorded.
  5. Adjusted Trial Balance
    A list of accounts and their balances after all adjustments have been posted.
  6. Adjusting Entries
    Entries made at the end of an accounting period to ensure that the revenue and expense recognition criteria are followed.
  7. book value
    The difference between the cost of a depreciable asset and its related accumulated depreciation.
  8. Calendar Year
    Accounting period that extends from January 1 to December 31.
  9. Cash Basis Accounting
    A basis for accounting in which revenue is recorded when cash is received and an expense is recorded when cash is paid.
  10. Contra Asset Account
    An account offset against an asset account on the balance sheet.
  11. Deferrals
    Adjusting entries for either prepaid expenses or unearned revenues
  12. Depreciation
    The process of allocation the cost of an asset to expense over its useful life.
  13. expense recognition principle (matching principle)
    Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
  14. Fiscal Year
    An accounting period that is one year long. It does not need to start and end on the same days as the calendar year.
  15. Interim Periods
    Monthly or quarterly accounting time periods.
  16. Prepaid Expenses
    Costs paid in cash and recorded as assets before they are used or consumed.
  17. Revenue Recognition Principle
    The principle that companies recognize revenue in the accounting period in which the performance obligation is satisifed
  18. Time Period Assumption
    An assumption that accountants can divide the economic life of a business into artificial time periods.
  19. Unearned Revenue
    Revenues received in cash and recorded as liabilities before they are earned.
  20. Useful Life
    The length of service of a long-lived asset.
Card Set
Chapter 3: Adjusting the Accounts
3.1 Explain the accrual basis of accounting and the reasons for adjusting entries. 3.2 Prepare adjusting entries for deferrals. 3.3 Prepare adjusting for accruals. 3.4 Describe the nature and purpose of an adjusted trial balance.