4.8: Key Terms
- Page ID
- 94588
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- accounting equation
- 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