Journal entries made at the end of an accounting period to bring about a proper matching of revenues and expenses; they reflect economic activity that has taken place but has not yet been recorded. Adjusting entries are made to bring the accounts to their proper balances before financial statements are prepared.Book valueFor depreciable assets, book value equals cost less accumulated depreciation.Calendar yearThe normal year, which ends on December 31.Cash basis of accountingRecognizes revenues when cash is received and recognizes expenses when cash is paid out.Contra asset accountAn account shown as a deduction from the asset to which it relates in the balance sheet; used to reduce the original cost of the asset down to its remaining undepreciated cost or book value.Deferred itemsAdjusting entries involving data previously recorded in the accounts. Data are transferredfrom asset and liability accounts to expense and revenue accounts. Examples are prepaid expenses, depreciation, and unearned revenues.Depreciable amountThe difference between an asset’s cost and its estimated residual value.Depreciable assetA manufactured asset such as a building, machine, vehicle, or equipment on which depreciation expense is recorded.Depreciation accountingThe process of recording depreciation expense.Depreciation expenseThe amount of asset cost assigned as an expense to a particular time period.Depreciation formula(straight-line): Estimated residual value (scrap value) The amount that the company can probably sell the asset for at the end of its estimated useful life.Estimated useful lifeThe estimated time periods that a company can make use of the asset.Fiscal yearAn accounting year of any 12 consecutive months that may or may not coincide with the calendar year. For example, a company may have an accounting, or fiscal, year that runs from April 1 of one year to March 31 of the next.Matching principleAn accounting principle requiring that expenses incurred in producing revenues be deducted from the revenues they generated during the accounting period.Prepaid expenseAn asset awaiting assignment to expense. An example is prepaid insurance. Assets such as cash and accounts receivable are not prepaid expenses.Service potentialThe benefits that can be obtained from assets. The future services that assets can rendermake assets “things of value” to a business.Trend percentagesCalculated by dividing the amount of an item for each year by the amount of that item for the base year.