Vocabulary

accounting cycle

step-by-step continuous process of accounting activities that keep accounting records in order

accrual

category of adjusting entry that recognizes the use (expense) or earning (revenue) associated with an event before any cash is exchanged

adjusted trial balance

additional trial balance prepared by adding adjusting journal entries to the unadjusted trial balance

adjusting journal entry

entry prepared because of the passage of time or a change in circumstances when no specific transactions have occurred. Adjusting journal entries are usually recorded at the end of an accounting period.

balance sheet

one of the four major financial statements, representing a snapshot in time of an organization's assets, liabilities, and owner's equity

closing entry

entry prepared to close the books and move to the next accounting period, which includes the "zeroing out" of temporary accounts

completeness

accounting concept that suggests the accounting cycle should maintain processes to ensure all legitimate accounting events are recorded

contra asset account

unique account that offsets the cost of an existing asset to adjust the asset account to its book value

deferrals

category of adjusting entries that recognize the use (expense) or earning (revenue) associated with an event after the exchange of cash

depreciation

accounting concept that spreads significant asset costs over the time period during which the asset will be useful

income statement

one of the four major financial statements, measuring revenues minus expenses to arrive at the net income or net loss during a specific time period

matching principle

accounting principle that holds that revenues should be contemporaneously matched with the expenses that helped generate them

permanent account

account that is never closed, appearing on the balance sheet. Balances remain open and roll forward to the next accounting period or cycle.

post-closing trial balance

final trial balance prepared to include the effect of closing entries, representing the end of current accounting period/cycle. Only permanent accounts appear on a post-closing trial balance.

retained earnings

permanent account reflecting the running total of net income of an organization over its entire history. Net income increases its balance, while net losses decrease its balance.

statement of cash flows

one of the four major financial statements, classifying cash receipts and payments by operating, investing, and financing activities during a specific time period

statement of owner's equity

one of the four major financial statements, representing changes in owner's equity from beginning to end of a period

temporary accounts

category of accounts that do not retain a balance, or are "zeroed out," when moving from one accounting period to the next, such as revenue and expense accounts

unadjusted trial balance

listing of all accounts and their balances at any point in time