Financial & Managerial Accounting Chapter 3

accumulated depreciation

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

adjusting entries

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

matching concept (or matching principle)

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

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.

accrued expenses

Expenses that have happened but not recorded (still need to pay)

prepaid expenses

Items such as supplies that will be used in the business in the future.

fixed assets (or plant assets)

Longterm or 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 recorded

revenue recognition concept

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

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.

depreciate

To lose usefulness as all fixed assets except land do.

deferred revenues

initially recorded as a liability but are expected to become revenue

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.

accrued revenues

accounts receivable

accrued expenses

accrued wages

accrued expenses

aka accrued liability

deferred expenses

aka prepaid expenses

deferred revenues

aka unearned revenues

deferred expenses

prepaid insurance and supplies

deferred expenses

recorded as assets but will become expenses

accounting period concept

requires that revenues and expenses be reported in the proper period

deferred revenues

unearned rent and tuition