Business Foundations

matching concept

a concept of accounting in which expenses are matched with the revenue generated during a period by those expenses

notes recievable

a customer's written promise to pay an amount and possibly interest at an agreed upon rate

accruals

accrued revenues and accrued expenses are sometimes referred to as _________ because the related revenue or expense should be recorded in the current period

fixed assets

also called plant assets, long term or relatively permanent tangible assets such as quipment, machiner, and buildins that are used in the normal business operations and that depreciate over time

fixed assets

also known as plant assets, long term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time

contra accounts

an account offset against another account

adjusting process

an analysis and updating of the accounts when financial statements are prepared

vertical analysis

an analysis that compares each item in a current statement with a total amount within the same statement

matching

by ________ revenues and expenses, net income or loss for the period is properly reported on the income statement

current assets

cash and other assts that are expected to be converted to cash or sold or used up, usually within one year or less, through the normal operations of the business

accrued expenses

expenses that have been incurred but not recorded in the accounts

allocation

is depreciation an allocation or valuation method, because it only takes into account the use over time and not its market value

prepaid expenses

items such as supplies that will be used in the business in the future

long term liabilities

liabilities that usually will not be due for more than one year

retained earnings statement

on the end of the year work sheet, where do the dividends acount flow into?

income statement

on the end of the year work sheet, where do the revenues and expense accounts flow into?

balance sheet

on the end of the year worksheet, where do the asset, liability, and capital stock accounts flow into?

deferrals

prepaid expenses and unearned revenues are sometimes referred to as ___________ because the recording of the related expense or revenue is put off to a future period

accrued revenue

revenues that have been earned but not recorded in the accounts

current liabilities

t will be due within a short time (usuallyh one year or less) and that are to be paid out of current assets

accounting period concept

the accounting concept that assumes that the economic life of the business can be divided into time periods

revenue recognition concept

the accounting concept that supports reporting revenues when the services are provided to customers

accumulated depreciation

the contra asset account credited when recording the depreciation of a fixed asset

book value of the asset

the difference between the cost of a fixed asset and its accumulated depreciation

adjusting entries

the journal entries that bring the accounts up to date at the end of the accounting period

unearned revenue

the liability created by receiving revenue in advance

depreciation expense

the portion of the cost of a fixed asset that is recorded as an expense each year of its useful life

depreciation

the systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life

adjusted trial balance

the trial balance prepared after all the adjusting entries have been posted

accounts requiring adjustment

these four basic accounts are examples of what 1. prepaid expenses 2. unearned revenue 3. accrued revenues 4. accrued expenses

depreciate

to lose usefulness as all fixed assets except land

true

true or false? all adjusting entries affect at least one income statement account and one balance sheet account.

true

true or false? an adjusting entry will ALWAYS involve a revenue or an expense account AND an asset or liability account

cash basis of accounting

under this basis of accounting, revenues and expenses are reported in the income statement in the period in which cash is received or paid

accrual basis of accounting

under this basis of accounting, revenues and expenses are reported in the income statement in the period in which they are earned or incurred

unadjusted trial balance

what end of the period spreadsheet verifies that the total of teh debit balances equals teh total of the credit balances

credit

what is the normal balance of an accumulated depreciation account

next accounting period

when are accrued expenses and revenues normally paid or received?

small businesses

who is more likely to use the cash basis of accounting? large corporations or small businesses?