Financial Accounting - chapter 3

21 terms by clortner1842 

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Account

A record for summarizing increases and decreases in a financial statement element.

Accounting cycle

The process that begins with that analysis of transactions and ends with preparing the accounting records for the next accounting period.

Accounts payable

A liability for an amount incurred from purchases of products or services in the normal operations of a business.

Accounts receivable

An asset for amounts due from customers in the normal operations of a business.

Accrual basis of accounting

A system of accounting in which revenue is recorded as it is earned and expenses are recorded when they generate revenue.

Accruals

A revenue or an expense that has not been recorded.

Accured expense

An expense that has been incurred at the end of an accounting period but has not been recorded in the accounts; sometimes called an accrued liability.

Accrued revenue

A revenue that has been earned at the end of an accounting period but has not been recorded in the accounts; sometimes called an accrued asset.

Accumulated depreciation

An offsetting or contra asset account used to record depreciation on a fixed asset.

Adjustment process

A process required by the accrual basis of accounting in which the accounts are updated prior to preparing financial statements.

Cash basis of accounting

A system of accounting in which only transactions involving increases or decreases of the entity's cash are recorded.

Classified balance sheet

A balance sheet prepared with various secions, subsections, and captions that aid in its interpretation and anaylsis.

Common-sized financial statement

A financial statement in which all items are expressed in percentages.

Current assets

Cash and other assets that are expected to be converted to cash or sold or used up within one year or less, through the normal operations of the business.

Current liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets.

Deferrals

The delayed recording of an expense or revenue.

Deferred expenses

Items that are initially recorded as assets but are expected to beome expenses over time or through the normal operations of the business; sometimes called prepaid expenses.

Deferred revenues

Items that are initially recorded as liabilites but are expected to become revenues over time or through the normal operations of the business; sometimes called unearned revenues.

Depreciation

The reduction in the ability of a fixed asset to provide service.

Fixed assets

Physical assets of a long-term nature; sometimes called plant assets.

Intangible assets

Assets that are rights of a long-term nature.

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