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?