This exercise will quiz you about terminology used in this chapter.
A list of accounting terms with which you should be familiar appears below:
Expense recognition principle (matching principle)
Adjusted trial balance
Revenue recognition principle
Time period assumption
Contra asset account
For each item below, enter in the blank the term that is described. Accounting basis in which events that change sa company"s financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash. Thus, revenues are recognized when earned and expenses are recognized when incurred, regardless of when the related cash is received or paid. Revenue is recorded only when cash is received, and an expense is recorded only when cash is paid. An assumption that the economic life of a business can be divided into artificial time periods of equal length. Another name for this assumption is the periodicity assumption. The principle that dictates revenue be recognized in the accounting period in which the performance obligation is satisfied. The principle that dictates efforts (expenses) be matched with accomplishments (revenues). Expenses incurred but not yet paid in cash or recorded. They result in accrued liabilities. Revenues for services performed but not yet received in cash or recorded. They result in accrued receivables. Expenses paid in cash and reported as assets before the related goods and services are used up or consumed (often called deferred expenses). Revenues received in cash and reported as liabilities before the related services are performed (often called deferred revenues). Entries made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed. Adjusting entries for either accrued revenues or accrued expenses. Adjusting entries for either prepaid expenses or unearned revenues. A list of accounts and their balances after all adjustments have been made. The difference between the cost of a depreciable asset and its related accumulated depreciation (often called carrying value or carrying amount). An accounting period that extends from January 1 to December 31. An account that is offset against an asset account on the balance sheet. The length of service of a productive facility (often called estimated service life). The process of allocating the cost of a plant asset to expense over its useful life in a rational and systematic manner. An accounting period that is one year in length. Monthly or quarterly accounting time periods.