BMGT220 Chapter 3
Book Value of Asset (or Net Book Value)
The difference between the cost of a fixed asset and its accumulate depreciation
Adjusting Entries
The journal entries that bring the accounts up to date at the end of the accounting period
Unearned Revenues
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
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
Vertical Analysis
Analysis used to compare each item in a financial statement with a total amount from the same statement, which is useful in analyzing relationships within the financial statement
Accrued Expenses
Expenses that have been incurred but not yet recorded in the accounts
Fixed Assets (or Plant Assets)
Longterm of relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time
Accrued Revenues
Revenues that have been earned but not yet recorded in the accounts
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
Prepaid Expenses
The advance payment of future expenses (supplies)
Matching Concept (or Matching Principle)
The concept in accounting in which expenses are matched with the revenue generated during a period by those expenses
Accumulated Depreciation
The contra asset account credited when recording depreciation of a fixed asset
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
Depreciate
To lose usefulness as all fixed assets except land do
Accrual Basis of Accounting
Under the basis of accounting, revenues and expenses are reported in the income statement in the period in which they are earned or incurred
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