The Financial Accounting Cycle

These flashcards cover critical vocabulary terms and definitions related to the financial accounting cycle.

Source Document

Any document that provides information about a business transaction, e.g., purchase invoices and sales invoices.

Journalizing

The process of entering transactions in a journal, including date, title of accounts affected, and amounts.

General Journal

A journal used to record all transactions for which a special journal is not maintained.

Posting

The process of copying debits and credits from the journal to the ledger accounts.

Trial Balance

A list of all accounts and their balances extracted from the ledgers, used to check arithmetical accuracy.

Closing Process

Steps to reduce all nominal or temporary accounts to zero balances at the end of the accounting period.

Prepaid Expenses

Advance payments of expenses or cash paid for services not yet used up, listed among current assets.

Unearned Revenue

Cash collected in advance for services to be rendered in future accounting periods, shown in the balance sheet as liabilities.

Accrued Expenses

Amounts owed for expenses incurred but not yet paid, shown as current liabilities.

Accrued Revenue

Revenue earned during the accounting period but not yet received or collected, reflected as a current asset.

Depreciation

The spread of the cost of a fixed asset over its economic useful life or the fall in the value of a fixed asset.

Straight-Line Method

A method of depreciation where the fixed asset is depreciated by the same amount every year.

Accumulated Depreciation

A contra-asset account reflecting the total depreciation expense accumulated against a fixed asset.

Net Book Value (NBV)

The difference between the cost of an asset and its accumulated depreciation.

Worksheet

A columnar form used by accountants to enter adjusting entries and prepare financial statements.