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