Chapter 3: Adjusting the Accounts

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Accrual-basis Accounting

A basis for accounting in which revenues are recorded when earned and expenses are recorded when incurred.
Accruals

Adjusting entries for either accrued revenues or accrued expenses.
Accrued expenses

Expenses incurred but not yet paid in cash or recorded.
Accrued Revenues

Revenues earned but not yet received in cash or recorded.
Adjusted Trial Balance

A list of accounts and their balances after all adjustments have been posted.
Adjusting Entries

Entries made at the end of an accounting period to ensure that the revenue and expense recognition criteria are followed.
book value

The difference between the cost of a depreciable asset and its related accumulated depreciation.
Calendar Year

Accounting period that extends from January 1 to December 31.
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.
Contra Asset Account

An account offset against an asset account on the balance sheet.
Deferrals

Adjusting entries for either prepaid expenses or unearned revenues
Depreciation

The process of allocation the cost of an asset to expense over its useful life.
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.
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.
Interim Periods

Monthly or quarterly accounting time periods.
Prepaid Expenses

Costs paid in cash and recorded as assets before they are used or consumed.
Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisifed
Time Period Assumption

An assumption that accountants can divide the economic life of a business into artificial time periods.
Unearned Revenue

Revenues received in cash and recorded as liabilities before they are earned.
Useful Life

The length of service of a long-lived asset.

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Chapter 3: Adjusting the Accounts

Description

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.

Updated

2016-03-13T03:19:11Z

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