Financial Accounting: In an Economic Context

Glossary

A

accelerated methods of depreciation Accelerated methods of depreciation are used to depreciate fixed assets. Under these methods, more costs are allocated to earlier periods than are allocated to later periods. Examples include double-declining-balance and sum-of-the-years'-digits. These methods are considered conservative since they recognize large amounts of depreciation in the early years of an asset's life.

accounting equation The accounting equation is the basis for the four financial statements. It is a mathematical equation stating that the dollar value of a company's assets equals the dollar value of its liabilities plus the dollar value of its shareholders' equity. The balance sheet is a statement of this equation; transactions are recorded on the financial statements in a way that maintains the equality of this equation.

accounting period An accounting period is the period of time between the preparation of the financial statements. Statements are often prepared monthly, quarterly, semiannually, or annually. Most companies report on a calendar-year basis, but for various reasons, some companies report on other 365-day cycles, called fiscal years.

accounts payable Accounts payable are dollar amounts owed to others for goods, supplies, and services purchased on open account. They arise from frequent transactions between a company and its suppliers that are normally not subject to specific, formal contracts. These extensions of credit are the practical result ...