Accounting Chp. 3

Book value of the asset (or net book value)

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

Accruals

The gradual accumulation of an expense or revenue that hasn't yet been recorded in the accounting records.

Adjusting entries

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

Deferral

A process of recording a transaction (an item) in a way that postpones or delays the recognition of (that item as) an expense or revenue.

Contra account (or contra asset account)

An account offset against another account.

Adjusting process

An analysis and updating of the accounts when financial statements are prepared.

Prepaid expense

An item initially recorded as an asset but that is expected to become an expense over time.

Accrued expenses

Expenses that have been incurred but not recorded in the accounts. an expense that has been incurred but that has not been recorded in the accounting records yet.

Fixed 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. Or Long-lived, tangible assets, used in the operation of the business and not held for resale.

Accrued revenues

Revenues that have been earned but not recorded in the accounts. a revenue that has been earned but that has not yet been recorded in the accounting records.

Accumulated depreciation

The account created when recording the depreciation of a fixed asset.

Accounting Period Concept

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

Matching Concept

The accounting concept that supports reporting revenues and the related expenses in the same period.

Depreciation Expense

The portion of the cost of 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 the its expected useful life.

Depreciate

To lose usefulness as all fixed assets except land do.

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.

Prepaid (deferred) expense

already paid cash

Asset account

an account that contains the original cost of the fixed asset.

Unearned (deferred) revenue

an item initially recorded as a liability that is expected to become a revenue over time. Items that have been initially recorded as liabilities but are expected to become revenues over time or through the normal operations of the business.

Accrued expense

cash NOT yet paid

Accrued revenue

cash NOT yet received

Unearned (deferred) revenue

cash already received

Prepaid assets

consumable commodities or services acquired for use in the business and that will be used up within a short period of time.

Mixed account

has both a balance sheet amount and an income statement amount.

Revenue recognition concept

the account concept that supports reporting revenues when the services are provided to the customer

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