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Exam 3
ACC 117
| Term | Definition |
|---|---|
| accrual basis of accounting | a method under which revenues are recorded when earned and expenses are recorded when incurred |
| Adjusted Trial Balance columns | the third pair of amount columns on the work sheet. They are used to prove the equality of the debits and credits in general ledger accounts after making all end-of-period adjustments |
| adjusting entries | Journal entries made at the end of an accounting period to reflect changes in account balances that are not the direct result of an exchange with an outside party |
| Balance Sheet columns | The work sheet columns that show the amounts that will be reported in balance sheet and the statements of owner's equity |
| book value | The difference between the asset account and its related accumulated depreciation account. The value reflected by the accounting records. |
| cash basis of accounting | A method of accounting under which revenues are recorded when cash is received and expenses are recorded when cash is paid |
| contra-asset | an account with a credit balance that is deducted from the related asset account on the balance sheet |
| depreciable cost | the cost of an asset that is subject to depreciation |
| depreciation | a method of matching an asset's original cost against the revenues produced over its useful life |
| expense recognition principle | Expenses should be recognized when incurred, regardless of when cash is paid. Expenses are generally considered to be incurred when services are received or assets consumed |
| fiscal year | a 12-month period for which financial reports are prepared |
| historical cost principle | a principle that requires many assets to be recorded at their actual cost |
| Income Statement columns | The work sheet columns that show the amounts that will be reported in the income statement |
| market value | the amount an item can be sold for under economic conditions |
| matching principle | The proper matching of revenues earned during an accounting period with the expenses incurred to produce the revenues is often referred to as matching principle |
| modified cash basis of accounting | A method of accounting that combines aspects of the cash and accrual methods. It uses the cash basis for recording revenues and most expenses. Exceptions are made when cash is paid for assets with useful lives together than one accounting period |
| plant assets | Assets of a durable nature that will be used for operations over several years. Examples include buildings and equipment |
| revenue recognition principle | Revenues should be recognized when earned, regardless of when cash is received from the customer. Revenues are considered earned when a service has been provided or a product has been sold |
| salvage value | The expected market value of an asset at the end of its useful life |
| straight-line method | a depreciation method in which the depreciable cost is divided by the estimated useful life |
| undepreciated cost | The difference between the asset account and its related accumulated depreciation account. Also known as book value |
| useful life | The period of time that an asset is expected to help produce revenues |
| work sheet | A form used to pull together all of the information needed to enter adjusting entries and prepare the financial statments |
| account form of balance sheet | a balance sheet in which the assets are on the left and the liabilities and owner's equity sections on the right |
| accounting cycle | the steps involved in accounting for all of the business activities during an accounting period |
| classified balance sheet | a balance sheet with separate categories for current assets; property, plant, and equipment; current liabilities; and long term liabilities |
| closing process | the process of giving zero balances to the temporary accounts so that they can accumulate information for the next accounting period |
| current assets | cash and assets that will be converted into cash or consumed within either one year or the normal operating cycle of the business, whichever is longer |
| current liabilities | liabilities that are due within either one year or the normal operating cycle of the business, whichever is longer, and that are to be paid out of current assets |
| Income Summary | a temporary account used in the closing process to summarize the effects of all revenue and expense accounts |
| long-term assets | assets that are expected to serve the business for many years. Also called plant assets or long term assets |
| long-term debit | obligations that are not expected to be paid within year and do not require the use of current assets. Also called long-term debt |
| operating cycle | the period of time required to purchase supplies and services and convert them back and forth |
| permanent accounts | accounts that accumulate information across accounting periods; all accounts reported on the balance sheet |
| plant assets | assets that are expected to serve the business for many years. Also called long-term assets. |
| post-closing trial balance | prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts |
| property, plant, and equipment | assets that are expected to serve the business for many years. Called long-term and plant assets |
| report form of balance sheet | a balance sheet in which the liabilities and the owner's equity sections are shown below the assets section |
| temporary accounts | accounts that do not accumulate information across accounting periods but are closed, such as the drawing account and all income statement accounts |
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anichols23
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