Chapter 03 - The Accounting Cycle: End of the Period

These flashcards cover key vocabulary terms and concepts found in Chapter 03 of the Accounting Cycle, focusing on the measurement process, financial statements, adjusting entries, and closing entries.

Accrual-basis accounting

A method of accounting where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid.

Cash-basis accounting

An accounting method where revenues and expenses are recognized only when cash is received or paid.

Adjusting entries

Entries made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Adjusted trial balance

A list of all accounts and their balances at a specific date, after adjusting entries have been made.

Closing entries

Journal entries made at the end of an accounting period to transfer balances from temporary accounts to permanent accounts.

Retained earnings

The cumulative amount of net income that has been retained in the corporation rather than paid out as dividends.

Financial statements

Reports that summarize the financial status and performance of a business, including the income statement, balance sheet, and statement of stockholders' equity.

Revenue recognition principle

The accounting principle that governs when revenue is recognized or recorded in the financial statements.

Matching principle

An accounting principle that states expenses should be matched with the revenues they help to generate.

Trial balance

A list of all the accounts in the general ledger with their respective balances, used to verify that total debits equal total credits.

Prepaid expense

A payment made in advance for goods or services to be received in the future.

Accrued revenue

Revenue earned but not yet received in cash or recorded.

Unearned revenue

Cash received before services are performed or goods are delivered, recognized as a liability.

Permanent account

Accounts that are not closed at the end of the accounting period and carry over into the next period.

Temporary account

Accounts that are closed at the end of the accounting period, including revenues, expenses, and dividends.

Post-closing trial balance

A trial balance prepared after closing entries are made; it lists all accounts and their balances, which should only include permanent accounts.