CH2 Terminology

A set of vocabulary flashcards based on lecture notes covering accrual accounting, expenses, liabilities, and financial statement models.

Accounts receivable

Expected future cash receipt arising from permitting a customer to buy now and pay later; typically a relatively small balance due within a short time period.

Accrual

Recognition of events before exchanging cash.

Accrual accounting

Accounting system that recognizes revenues when earned and expenses when incurred regardless of when the related cash is exchanged.

Accrued expenses

Expenses that are recognized before cash is paid. An example is accrued salaries expense.

Adjusting entry

Entry that updates account balances prior to preparing financial statements.

Claims exchange transaction

Transaction that decreases one claim and increases another so that total claims do not change. For example, the accrual of interest expense is a claims exchange transaction; liabilities increase, and the recognition of the expense causes retained earnings to decrease.

Cost

An amount paid to acquire a resource (asset) or to pay for a resource that has been consumed. Incurring a cost results in an asset exchange or expense recognition.

Deferral

Recognition of revenue or expense in a period after the cash is exchanged.

Period costs

General, selling, and administrative costs that are expensed in the period in which the economic sacrifice is made.

Prepaid items

Deferred expenses. An example is prepaid insurance.

Salaries payable

Amounts owed but not yet paid to employees for services they have already performed.

Unearned revenue

Liability arising when customers pay cash in advance for services a business will perform in the future.

Vertical statements model

Concurrent representation of several financial statements shown vertically on a page.