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accounting chapter 3 and 4 - Chapter 3 Accrual Basis...

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Chapter 3 Accrual Basis Accounting : Accounting method that records revenues when earned and senses when incurred. Accrued Expense : An expense that the business has incurred but has not yet paid. Accrued Revenue : A revenue that has been earned but for which the cash has not yet been collected. If revenue has been earned it will be recorded. Record accrued revenues with a debit to accounts receivable and credit to service revenue. Opposite of deferred revenues. Accumulated depreciation : The sum of all the depreciation expense recorded to date for a depreciable asset. Adjusted Trial Balance : A list of all the accounts with their adjusted balances. Adjusting Entry : Can be divided into two different categories: Deferrals and Accruals. An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur. Book Value : A depreciable asset’s cost minus accumulated depreciation. Cash Basis Accounting : Accounting method that records revenue only when cash is received and expenses only when cash is paid. Contra Account : An account that is paired with m and is listed immediately after, its related account in the chart of accounts and associated financial statement, and whose normal balance is the opposite of the normal balance of the related account. Deferred Revenue : A liability created when a business collects cash from customers in advance of completing a service or delivering a product. Un earned revenue. Pre-payment from a customer is considered a liability. Deferred Expenses : are advance payments of future expenses, treated as assets until used, recognized as an expense by an adjusting journal entry when the prepayment is used. Types of deferred expenses: prepaid rent, office supplies, depreciation. Depreciation : The process by which businesses spread the allocation of a plant asset’s cost over its useful life. Fiscal Year : An accounting year of any twelve consecutive months that may or may not coincide with the calendar year. Matching Principle : Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period. Plant Asset : Long-Lived, Tangible asset, such as land, buildings, and equipment, used in the operation of a business. Residual Value : The expected value of a depreciable asset at the end of its useful life.
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