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4.8: Key Terms

Last updated

Mar 9, 2024
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- 4.7: Summary
- 4.9: Multiple Choice

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accounting equation: $Assets = Liabilities + Owner ’ s Equity$

accrual-basis accounting: an accounting system in which revenue is recorded or recognized when earned yet not necessarily received, and in which expenses are recorded when legally incurred and not necessarily when paid

capitalize: the process in which a long-term asset is recorded on the balance sheet and its allocated costs are expensed on the income statement over the asset’s economic life

cash-basis accounting: a method of accounting in which transactions are not recorded in the financial statements until there is an exchange of cash

credit: a record of financial information on the right side of an account

debit: a record of financial information on the left side of each account

depreciation: the process of allocating the costs of a tangible asset over the asset’s economic life

double-entry accounting: an accounting method that requires the sum of the debits to equal the sum of the credits for each transaction

expense: a cost associated with providing goods or services

expense recognition: (also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated

gains: increases in organizational value from activities that are “incidental or peripheral” to the primary purpose of the business

income statement: a financial statement that measures the organization’s financial performance for a given period of time

long-term asset: asset used in the normal, ongoing course of business for more than one year that is not intended to be resold

losses: decreases in organizational value from activities that are “incidental or peripheral” to the primary purpose of the business

net income: income earned when revenues and gains are greater than expenses and losses

revenue: inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations

revenue recognition: principle stating that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided

T-account: a graphic representation of a general ledger account in which each account is visually split into left and right sides

tangible asset: an asset that has physical substance

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