ACCT201A Chapter03 - The measurement process

so ican measure

cash-basis accounting

record transactions only at the time cash is received or paid; was cash received from customers? if no, there is no transaction

accrual-basis accounting

was a service provided to customers at the time of the transaction? Timing differences are recorded as assets, liabilities, revenues, and expenses as they occur

adjusting entries

used to update balances of assets and liabilities(related revenues and expenses) at the end of each year

prepaid expenses

when a company pays cash to purchase an asset in advance of using that asset; timing difference - cash is paid now, and then later, the expense is recognized for the cost of asset used

expense recognition

depreciation

the process of allocating the cost of an asset to expense over the asset’s useful life

accumulated depreciation account

called a contra account, which is an account with a balance that is opposite, or “contra” to its related accounts

deferred revenues

when a company receives cash in advance from customers, but goods or services won’t be provided until a later period, creating a timing difference between when cash is received and when related revenue is recognized

classified balance sheet

groups a company’s assets and liability accounts based on timing of activity: current versus long-term

operating cycle

the average time it takes to provide a service to a customer and then receive cash from the customer

intangible assets

assets that lack physical substance but have long-term value to a company

permanent accounts

appear in the balance sheet, including retained earnings; balances carried forward from one period to the next

temporary accounts

measures activity for a year only and thus their balances are rest to $0 by the start of the next year

closing entries

transfers the balances of all temporary accounts to the balance of the retained earnings account

adjusted trial balance

temporary accounts

measure activity for one year only; balances reset to $0 by the start of the next year by moving them to retained earnings thru closing entries (revenues, expenses, and dividends)

permanent accounts

appear in the balance sheet, including retained earnings (assets, liabilities, and equity)