Chapter 4 Terms

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Accounting Cycle

the process followed by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle.

Accrued Expenses

previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and the related payable account

Accrued Revenues

previously unrecorded revenues that need to be adjusted at the end of the accounting period to reflect the amount earned and the related receivable account

Adjusting Entries

Journal entries necessary at the end of the accounting period to measure all revenues and expenses of that period

Closing Entry

transfers balances in temporary accounts to Retained Earnings and establishes zero balances in temporary accounts

Contra-Account

account that is offset to, or reduction of, the primary account

Deffered Expenses

previously acquaired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the asset to generate revenue

Deffered (unearned) Revenues

previously recorded liabilities that need to be adjusted at the end of the accounting period to reflect the amount of revenue earned

Net Book Value

of an asset is the difference between its acquisition cost and accumulated depreciation, its related contra-account

Permanent Accounts

Balance sheet accounts whose balances are carried forward to the next accounting period

Post Closing Trial Balance

should be prepared as the last step of the accounting cycle to check that debits equal credits and all temporary accounts have been closed

Temporary Accounts

income statement accounts that are closed to retained earnings at the end of the accounting period

Trial Balance

a list of all accounts with their balances to provide a check on the equality of the debits and credits

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