G-1
Accelerated depreciation method
A depreciation method that provides
for a higher depreciation amount in the
first year of the asset’s use, followed
by a gradual declining amount of
depreciation. (p. 409)
Account The element of an accounting
system that summarizes the increases
and decreases in each financial state-
ment item. (pp. 100, 155)
Accounting An information system that
provides reports to stakeholders about
the economic activities and condition of
a business. (p. 13)
Accounting cycle The process that begins
with the analysis of transactions and ends
with preparing the accounting records for
the next accounting period. (p. 119)
Accounting equation AssetsLiabilities
Stockholders’ Equity. (p. 17)
Accounting information system An infor-
mation system that consists of manage-
ment reporting, transaction processing,
and financial reporting subsystems that
processes financial and operational
data into reports useful to internal and
external stakeholders. (p. 153)
Accounting period concept A concept
of accounting in which accounting data
are recorded and summarized in a
periodic process. (p. 23)
Accounts payable A liability for an
amount incurred from purchases of
products or services in the normal oper-
ations of a business. (pp. 11, 102)
Accounts receivable A receivable
created by selling merchandise or ser-
vices on credit. (pp. 12, 103, 356)
Accounts receivable turnover The rela-
tionship between net sales and accounts
receivable, computed by dividing net
sales by the average net accounts
receivable. (pp. 370, 642)
Accrual basis of accounting A system of
accounting in which revenue is recorded
as it is earned and expenses are
recorded when they generate revenue.
(p. 117)
Accruals A revenue or expense that has
not been recorded. (p. 106)
Accrued expense An expense that has
been incurred at the end of an account-
ing period but has not been recorded
in the accounts; sometimes called an
accrued liability. (p. 106)
Accrued revenue A revenue that has
been earned at the end of an account-
ing period but has not been recorded
in the accounts; sometimes called an
accrued asset. (p. 106)
Accumulated depreciation An offsetting
or contra asset account used to record
depreciation on a fixed asset. (p. 108)
Accumulated other comprehensive income
The cumulative effect of other compre-
hensive income items disclosed in the
Stockholders’ Equity section of the bal-
ance sheet. (p. 508)
Adequate disclosure concept A concept
of accounting that requires that the
financial statements include all relevant
data a reader needs to understand the
financial condition and performance of
a business. (p. 23)
Adjusted trial balance The trial balance
prepared after the adjusting entries have
been posted to the ledger. (p. 164)
Adjusting entries The entries necessary
to bring the accounts up to date before
preparing financial statements. (p. 164)
Adjustment process A process required
by the accrual basis of accounting in
which the accounts are updated prior to
preparing financial statements. (p. 105)
Administrative expenses Expenses in-
curred in the administration or general
operations of the business. (p. 217)
Aging the receivables The process of
analyzing the accounts receivable and
classifying them according to various
age groupings, with the due date being
the base point for determining age.
(p. 361)
Allowance for Doubtful Accounts The
contra asset account for accounts receiv-
able. (p. 359)Allowance method The method of
accounting for uncollectible accounts
that provides an expense for uncol-
lectible receivables in advance of their
write-off. (p. 357)
Amortization The periodic transfer
of the cost of an intangible asset to
expense. (p. 412)
Annuity A series of cash flows that are
(1) equal in amount and (2) spaced
equally in time. (p. 450)
Annuity payments The dollar amount
of the equal periodic payment in an
annuity. (p. 450)
Asset turnover The number of sales
dollars earned for each dollar of total
assets, calculated as the ratio of net
sales to total assets. (p. 640)
Assets The resources owned by a
business. (p. 12)
Available-for-sale securities Securities
that management expects to sell in the
future but which are not actively traded
for profit. (p. 544)
Average cost method The method of
inventory costing that is based upon the
assumption that costs should be charged
against revenue by using the weighted
average unit cost of the items sold.
(p. 269)
Bad debt expense The operating ex-
pense incurred because of the failure to
collect receivables. (p. 357)
Balance of an account The amount of
the difference between the debits and
the credits that have been entered into
an account. (p. 155)
Balance sheet A list of the assets,
liabilities, and stockholders’ equity as
of a specific date, usually at the close
of the last day of a month or a year.
(p. 15)
Bank reconciliation The analysis that
details the items responsible for the
difference between the cash balance
reported in the bank statement and the
balance of the cash account in the
ledger. (p. 322)Glossary