KEY TERMS

Note: Definitions for these terms are provided in the glossary at the end of the text.

Accounting equation (p. 114)

Accrual system of accounting (p. 129)

Accruals (p. 130)

Amortized (p. 137)

Assets (p. 114)

Book value (p. 137)

Business transactions (p. 116)

Capitalized (p. 133)

Compound journal entries (p. 122)

Contra accounts (p. 137)

Contributed capital (p. 115)

Credit (p. 122)

Debit (p. 122)

Deferral (cost expiration) (p. 132)

Depreciation (p. 137)

Double entry system (p. 122)

Economic events (p. 113)

Expensed (p. 133)

Journal entries (p. 121)

Liabilities (p. 115)

Matching principle (p. 133)

Multinationals (p. 140)

Permanent accounts (p. 128)

Relevant events (p. 113)

Retained earnings (p. 115)

Revaluation adjustments (p. 139)

Shareholders' equity (p. 115)

Statement of cash flows—direct method of presentation (p. 141)

Statement of cash flows—indirect method of presentation (p. 141)

Straight-line depreciation (p. 138)

T-accounts (p. 123)

T-account analysis (p. 141)

Temporary accounts (p. 128)

Unearned revenues (p. 136)

ETHICS in the Real World

In an article about the subjectivity involved when deciding to capitalize or expense a cost, Forbes reports:

A dollar spent on a toaster doesn't reduce wealth in the same way as one spent on a Twinkie. One lasts, the other doesn't. But where do toasters end and Twinkies begin in [today's] economy? … Accountants understand the general problem, but they do not know what to do about it. Capitalizing anything that you can't drop on ...

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