Ch3 ACCOUNTING

Adjusted Trial Balance

* contains totals of all general ledger accounts •Is the trial balance prepared after adjustments have been recorded

Accrual basis of accounting

is an approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues.

Revenue recognition principle

is the accounting principle that requires revenues to be reported when earned.

Accumulated depreciation

is the total amount of depreciation that has been recorded against an asset or group of assets during the life of the asset.

Matching Principle

requires expense to be reported in the same period as the revenues earned.

Adjusting entries are journal entries

•Assuring that financial statements reflect the revenues earned and the expenses incurred •Assigning revenues to the periods in which they are earned •Updating liability and asset accounts to their proper balances •Assigning expenses to the periods in which they are incurred

Adjusting entries:

•Main purpose is to record internal transactions. •Affect both income statement and balance sheet accounts

Depreciation

Process of allocating the costs of plant assets over their expected useful lives. Remember: you must adjust the depreciation if the asset was not purchase at the beginning of the fiscal period

Time Period Principle

assumes that an organization's activities can be divided into specific time periods such as monthly, quarterly, fiscal year and/or calendar years.