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Useful life
The length of service of a productive asset.
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Accrued expenses
Expenese incurred but not yet paid in cash or recorded.
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Prepaid expenses (Prepayments)
Assets that result from the payment of expenses that benefit more than one accounting period
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Temporary accounts
Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.
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Closing entries
Entries at the end of an accounting period to transfer the balances of temporary accounts to permanent stockholders' equity account, Retained Earnings.
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Earnings management
The planned timing of revenues, expenses, gains and losses to smooth out bumps in net income.
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Contra asset account
An account that is offset against an asset account on the balance sheet.
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Reversing entry
An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.
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Revenue recognition principle
The principle that companies recognize revenue in the accounting period in which it is earned.
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Permanent accounts
Balance sheet accounts whose balances are carried forward to the next accounting period.
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Depreciation
The process of allocating the cost of an asset to expense over its usefule life.
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Fiscal year
An accounting period that is one year long.
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Accrual-basis accounting
Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.
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Income Summary
A temporary account used in closing revenue and expense accounts.
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Quality of earnings
Indicates the level of full and transparent information that a company provides to users of its financial statements.
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Matching principle
The principle that dictates that companies match efforts (expenese) with accomplistments (revenues).
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Unearned revenues
Cash received before a company earns reveunues and recorded as a liability until earned.
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Post-closing trial balance
A list of permanent accounts and their balances after a company has journalized and posted closing entries.
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Cash-basis accounting
Accounting bases in which a company records revenue only when it receives cash, and an expense only when it pays out cash.
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Adjusted trial balance
A list of accounts and their balances after all adjustments have been made.
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Time period assumption
An assumption that the economic life of a business can be divided into artificial time periods.
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Accrued revenues
Revenues earned but not yet received in cash or recorded.
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Worksheet
A multiple-column form that companies may use in the adjustment process and in preparing financial statements.
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Adjusting entries
Entries made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed.
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Book value
The difference between the cost of a depreciable asset and its related accumulated depreciation.
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