ACCT Quiz 2 Terms

Losses

Result primarily from the disposal of assets for less than their cost minus the amount of cost depreciated in the past.

Expense recognition principle

Record expenses when incurred in earning revenue.

Revenues

The amounts earned and recorded from a company's day-to-day business activities, mostly when a company sells products or provides services to customers or clients.

Time period assumption

Report the long life of a company in shorter time periods.

Operating cycle

The time it takes to purchase goods or services from suppliers, sell goods or services to customers, and collect cash from customers.

Expenses

The costs of operating the business that are incurred to generate revenues during the period.

Gains

Result primarily from the disposal of assets for more than their cost minus the amount of cost depreciated in the past.

Revenue recognition principle

Revenues are recognized when the company transfers promised goods or services to customers in the amount it expects to receive.

Cash basis accounting

Record revenues when received and expenses when paid.

Unearned revenue

A liability account used to record cash received before revenues have been earned.

Operating cycle

The time it takes to purchase goods or services from suppliers, sell goods or services to customers, and collect cash from customers.

Accrual basis accounting

Record revenues when earned and expenses when incurred.

Prepaid expenses

An asset account used to record cash paid before expenses have been incurred.

Revenues − Expenses = Net Income

The income statement equation.

Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends Declared

The retained earnings equation.

D/C: Assest

Increase: Debit, Decrease: Credit

D/C: Liabilities

Increase: Credit, Decrease: Debit

D/C: Revenues

Increase: Credit, Decrease: Debit

D/C: Expenses

Increase: Debit, Decrease: Credit

D/C: Common Stock

Increase: Credit, Decrease: Debit

expenses

the costs of operating the business that are incurred to generate revenues during the period.

other items

a) Interest Revenue (also Investment Revenue, Investment Income, or Dividend Revenue).

b) Interest Expense.

c) Losses (Gains) on Sale of Investments

Deferrals

Cash is received or paid before revenue is earned or an expense is incurred, respectively.

Accruals

Cash is received or paid AFTER revenue is earned or an expense is incurred, respectively.

Accrued Expenses

Recording operating expenses that have not yet been paid or recorded to reflect expenses incurred during the period.

Accrued Revenues

Recording revenues that have not yet been received or recorded to reflect revenue earned during the period.

Permanent accounts

accounts whose balances carry over from one accounting period to the next.

• Accounts on the balance sheet

Temporary accounts

used to gather information for a particular accounting period and then reset to zero by transferring the balance to a permanent account.

Closing Process

• Temporary accounts are zeroed out at the close of the accounting period in order to “start fresh” in the next period.

• The balances in these accounts are transferred to Retained Earnings—a permanent account.

• Can be directly closed to Retained earnings, or

• Use “Income Summary”

• Dividends are also closed to Retained Earnings.