Chapter 4

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Chapter 4
2010-10-09 14:34:33
Accrual Accounting

Accrual Accounting
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  1. Useful life
    The length of service of a productive asset.
  2. Accrued expenses
    Expenese incurred but not yet paid in cash or recorded.
  3. Prepaid expenses (Prepayments)
    Assets that result from the payment of expenses that benefit more than one accounting period
  4. Temporary accounts
    Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.
  5. Closing entries
    Entries at the end of an accounting period to transfer the balances of temporary accounts to permanent stockholders' equity account, Retained Earnings.
  6. Earnings management
    The planned timing of revenues, expenses, gains and losses to smooth out bumps in net income.
  7. Contra asset account
    An account that is offset against an asset account on the balance sheet.
  8. Reversing entry
    An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.
  9. Revenue recognition principle
    The principle that companies recognize revenue in the accounting period in which it is earned.
  10. Permanent accounts
    Balance sheet accounts whose balances are carried forward to the next accounting period.
  11. Depreciation
    The process of allocating the cost of an asset to expense over its usefule life.
  12. Fiscal year
    An accounting period that is one year long.
  13. Accrual-basis accounting
    Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.
  14. Income Summary
    A temporary account used in closing revenue and expense accounts.
  15. Quality of earnings
    Indicates the level of full and transparent information that a company provides to users of its financial statements.
  16. Matching principle
    The principle that dictates that companies match efforts (expenese) with accomplistments (revenues).
  17. Unearned revenues
    Cash received before a company earns reveunues and recorded as a liability until earned.
  18. Post-closing trial balance
    A list of permanent accounts and their balances after a company has journalized and posted closing entries.
  19. Cash-basis accounting
    Accounting bases in which a company records revenue only when it receives cash, and an expense only when it pays out cash.
  20. Adjusted trial balance
    A list of accounts and their balances after all adjustments have been made.
  21. Time period assumption
    An assumption that the economic life of a business can be divided into artificial time periods.
  22. Accrued revenues
    Revenues earned but not yet received in cash or recorded.
  23. Worksheet
    A multiple-column form that companies may use in the adjustment process and in preparing financial statements.
  24. Adjusting entries
    Entries made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed.
  25. Book value
    The difference between the cost of a depreciable asset and its related accumulated depreciation.