Vocabulary

accounting period

time period covered by financial statements, such as monthly, quarterly, semiannual, or annual statements

accrual basis accounting

recognizing revenue when earned and recording expenses when incurred regardless of the cash received or paid

accumulated depreciation

contra asset account used to offset or reduce an asset account to its book value, or carrying value

adjusted trial balance

list of general ledger accounts with proper balances after adjusting entries are posted in the ledger

adjusting entries

entries made at the end of the accounting period to adjust and bring the asset, liability, revenue, and expense accounts to their proper balances using accrual basis accounting

adjusting process

process of recording adjusting entries at period end, where required

book value

cost of an asset after its accumulated depreciation is subtracted

cash basis accounting

recognizing and recording revenue or expenses in the period when cash is received or paid

contra account

account that is associated with another account (the main account) that has a normal balance opposite the normal balance in the main account

depreciation

process of allocating the cost of property, plant, and equipment over their expected useful lives as an expense

fixed asset

tangible asset used in the normal course of business, such as property, plant, and equipment, to generate revenue

matching principle

principle used in the adjusting process to report or match expenses in the same accounting period as the revenue earned

prepaid expense

expense that has been paid for in advance of receiving goods or services purchased

revenue recognition principle

principle on which the adjusting process is based. It aims to recognize or record revenue in the accounting period when it is earned regardless of when cash is actually received.

time period concept

division of a business's activities into specific time periods such as a month, quarter, or year

unearned revenue

revenue that is a liability. It consists of payment (cash) received before the goods or services are provided.