Glossary – Chapter 3

• accrualExpenses and revenues that gradually accumulate throughout an accounting period
• accrual basisThe accounting process whereby revenues are measured and recorded as earned, while expenses are recorded as incurred
• accrued expensesUnpaid expenses that have already been incurred
• accrued revenuesRevenues that have been earned and recorded, but are not as yet collected
• adjusted trial balanceA trial balance prepared after adjusting entries have been prepared and posted to the ledger
• adjusting processTo analyze account balances and update them at the end of an accounting period to reflect the correct measure of revenues and expenses
• book valueCost minus accumulated depreciation; the net amount at which an asset is reported on the balance sheet
• cash basisAn accounting approach where revenue is recorded when cash is received (no matter when "earned"), and expenses are recognized when paid (no matter when "incurred")
• contra assetAn account that is subtracted from a related account -- contra accounts have opposite debit/credit rules
• depreciationThe process used to allocate the cost of a long-lived property to the accounting periods benefited
• fiscal yearA one-year accounting period that does not correspond to a calendar year
• matching principleTo associate expenses with revenues, and record them in simultaneous accounting periods
• modified cash basisLike the cash basis, except that certain large expenditures for durable assets may be recorded as assets initially
• natural business year
  Applicable to certain businesses that have a seasonal business pattern, and an attempt is made to establish an accounting fiscal year to match
• periodicity assumptionAn accounting assumption that purports to divide a continuous business process into measurement intervals, such as months, quarters, and years
• prepaid expensesGoods or services purchased in advance of their consumption
• revenue recognitionThe point at which revenue is recognized in the accounting records; ordinarily the point of sale
• unearned revenueRevenue that has been collected in advance of providing goods and services to "earn it;" reported as a liability until earned