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Accrual Accounting

This article delves into fundamental accounting concepts including accrual accounting, accrued expenses, and accrued revenues. It explains how businesses record the impact of events regardless of cash movements, highlighting essential items like adjusted trial balances, depreciation, deferred revenues, and prepaid expenses. Readers will learn about the matching principle and revenue recognition, ensuring financial statements accurately reflect income and expenses. By understanding these terms, businesses can maintain proper financial records and comply with accounting principles effectively.

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Accrual Accounting

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  1. Accrual Accounting

  2. Accounting that records the impact of a business event as it occurs regardless of whether the transaction affected cash.

  3. Accrued Expense

  4. An expense that the business has incurred but not yet paid.

  5. Accrued Revenue

  6. A revenue that has been earned but not yet collected in cash.

  7. Accumulated Deprectiation

  8. The cumulative sum of all depreciation expense recorded for an asset.

  9. Adjusted Trial Balance

  10. A list of all the accounts with their adjusted balances.

  11. Adjusting Entry

  12. Entry made at the end of the period to assign revenues to the period in which they are earned and expenses to the period in which they are incurred. Help measure the period’s income and bring the related asset and liability accounts to correct balances for the financial statements.

  13. Book Value (of a plant asset)

  14. The asset’s cost minus accumulated depreciation.

  15. Cash Basis Accounting

  16. Accounting that records transactions only when cash is received or paid.

  17. Contra Account

  18. An account that always has a companion account and whose normal balance is opposite that of the companion account.

  19. Deferred Revenue

  20. A liability created when a business collects cash from customers in advance of doing work. Also called unearned revenue.

  21. Depreciation

  22. The allocation of a plant asset’s cost to expense over its useful life.

  23. Matching principle

  24. Guide to accounting for expenses. Identify all expenses incurred during the period, measure the expenses, and match them against the revenues earned during that same time period.

  25. Plant Asset

  26. Long-lived tangible assets—such as land, buildings, and equipment – used in the operation of a business.

  27. Prepaid Expenses

  28. Advance payments of expenses. Examples include prepaid rent, prepaid insurance, and supplies

  29. Revenue Principle

  30. The basis for recording revenues; tells accountants when to record revenue and the amount of revenue to record.

  31. Time-Period Concept

  32. Ensures that information is reported at regular intervals.

  33. Unearned Revenue

  34. A liability created when a business collects cash from customers in advance of doing work. Also called deferred revenue.

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