Chapter 3 Key Terms College Accounting

book value of the assets (or net book value)

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 revenues

The liability created by receiving revenue in advance.

matching concept (or matching principle)

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

accrued revenue

Revenues that have been earned but not recorded in the accounts.

adjusted trial balance

A trial balance prepared after adjusting entries are posted.

contra accounts (or contra asset 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.

accured expenses

Expenses that have been incurred but not recorded in the accounts.

prepaid expense

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

fixed assets (or 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.

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.

depreciation

The systematic periodic transfer of the cost of a fixed assets to an expense account during its expected useful life

depreciate

To lose usefulness as all fixed assets except land do.

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.

depreciation expense

the portion of a plant asset's cost that is transferred to an expense account in each fiscal period during a plant asset's useful life