Ch 4 flashcards

Accrual Basis of Accounting

Accounting that records revenues when earned and expenses when incurred, regardless of cash exchanges.

Revenue Recognition Principle

Requires recognizing revenue when the performance obligation is satisfied.

Expense Recognition Principle

Requires that expenses be recognized in the period when efforts are made to generate revenue.

Adjusting Entries

Entries made to ensure that revenues and expenses are recognized in the proper accounting periods.

Deferrals

Costs or revenues that are recognized at a date later than the point when cash was originally exchanged.

Prepaid Expenses

Expenses paid in cash and recorded as assets before they are used or consumed.

Unearned Revenues

Cash received before services are performed that is recorded as a liability.

Accruals

Adjusting entries that recognize revenues and expenses that have occurred but have not been recorded.

Accumulated Depreciation

A contra asset account used to represent the total depreciation expense taken on a fixed asset.

Adjusted Trial Balance

A list of accounts and their balances after adjusting entries have been made to ensure accuracy before preparing financial statements.

Post-Closing Trial Balance

A trial balance prepared after closing entries have been posted to ensure that total debits equal total credits, containing only permanent accounts.

Temporary Accounts

Accounts that are closed at the end of an accounting period, including all income statement accounts and dividends.

Permanent Accounts

Accounts that carry their balances forward into the next accounting period, such as assets, liabilities, and equity accounts.

Quality of Earnings

A measure of the realism of a company's income and the degree to which it reflects actual financial performance.

Worksheet

A multiple-column spreadsheet used in the adjusting process to prepare financial statements.