Accounting Chapter 2

Question 1

Accrual Accounting

Answer 1

revenue and expenses are recorded when transaction occurs?

Question 2

Accrual

Answer 2

a revenue or expense event is recognized before cash is exchanged

Question 3

Deferral

Answer 3

a revenue or expense event that is recognized after cash has been exchanged

Question 4

Matching Concept Accrual Accounting

Answer 4

the objective of accrual accounting is to improve matching of revenues with expenses

Question 5

Accrued Revenues

Answer 5

goods or services provided, but money not received (adjustment is: increase assets - accounts receivable and increase stockholders’ equity - retained earning for revenue

Question 6

Accrued Expenses

Answer 6

Goods or services have been used, but not yet paid for (adjustment is: increase liabilities - accounts payable and decrease stockholders’ equity - retained earning for expense)

Question 7

Doing Business on Account

Answer 7

when transactions are done “on account” or “on credit”, it means that cash didn’t change hands at the time of the initial transaction

Question 8

Account Receivable

Answer 8

when a business performs a service or delivers a good on account (increases assets and stockholders’ equity) (when a business receives cash to pay off an account receivable, it increases and decreases assets by equal amounts)

Question 9

Account Payable

Answer 9

when a business incurs an expense on account (when a business creates an account payable for an expense, it increases liabilities and decreases stockholders’ equity) (when a business pays off an account payable, it decreases assets and liabilities)

Question 10

Income Statement Accrual Accounting

Answer 10

Consulting revenue represents the price charged for all serviced preformed in Year 1, even if the business had not received cash by the end of the year

Question 11

Net income for cash flow accounting and accrual accounting is the same

Answer 11

False

Question 12

Temporary Accounts

Answer 12

track financial results for a limited period of time (don’t carry over, reset to zero for next accounting period)

Question 13

Permanent accounts

Answer 13

track financial results from year to year (carry over)

Question 14

The Accounting Cycle

Answer 14

1. Identify Transactions
2. Record Transactions
3. Record Adjustments
4. Prepare Financial Statement

Question 15

Unearned (Deferred) Revenues

Answer 15

Money received in advance, goods or services now at least partially provided (adjustment is: increase stockholders equity - retained earning for revenue and decrease liabilities - unearned revenue)

Question 16

Prepaid (Deferred) Expenses

Answer 16

money paid in advance, goods or services now at least partially provided (adjustment is: decrease asset - prepaid expense and decrease stockholders’ equity - retained earnings for expense)