Accounting Process: Chapter 7

Question 1

It is an accounting period (12 months) ending on December 31.

Answer 1

Calendar Accounting Period

Question 2

It is an accounting period (12 months) ending on any month other than December 31.

Answer 2

Fiscal Accounting Period

Question 3

Adjusting Entry: income that is already earned but not yet collected

Answer 3

Accrued Income

Question 4

Adjusting Entry: expenses that are already incurred but not yet paid

Answer 4

Accrued Expense

Question 5

Adjusting Entry: advance collection

Answer 5

Deferrals (Unearned Income)

Question 6

Adjusting Entry: advance payment for services to be received

Answer 6

Prepayments (Prepaid Expense)

Question 7

Adjusting Entry: client accounts that may not be collected anymore or are doubtful of collection

Answer 7

Bad Debts

Question 8

Adjusting Entry: transfer of asset cost to expense based on its declining utility value

Answer 8

Depreciation

Question 9

These are entries prepared at the end of the accounting period to update some accounts and ensure their accuracy before preparing the financial statements.

Answer 9

Adjusting Entries

Question 10

Under the ___________, income is recognized as earned at the time service is rendered regardless of cash is collected.

Answer 10

Accrual Principle (Revenue Recognition Principle)

Question 11

Under the ___________, expense is recognized as incurred at the time service is received or used up regardless of cash is paid.

Answer 11

Accrual Principle (Expense Recognition Principle)

Question 12

Prepayment: the entry will be a debit to prepaid expense.

Answer 12

Asset Method

Question 13

Prepayment: the entry will be a debit to an expense account.

Answer 13

Expense Method

Question 14

Deferrals: the entry will be a credit to a liability account.

Answer 14

Liability Method

Question 15

Deferrals: the entry will be a credit to an income account.

Answer 15

Income Method

Question 16

Bad Debts: recognizes bad debts expense only when it is certain that the company will not be able to collect the account anymore.

Answer 16

Direct Write-Off Method

Question 17

Bad Debts: provides for bad debts or doubtful accounts during the period the sale of service is recorded.

Answer 17

Allowance Method

Question 18

It is the difference between the accounts receivable and the allowance for doubtful accounts.

Answer 18

Net Realizable Value

Question 19

It is the realizable value if the asset is to be sold.

Answer 19

Market Value

Question 20

It is the difference between the cost and the accumulated depreciation.

Answer 20

Book Value

Question 21

It represents the unexpired cost or the net utility value of the asset.

Answer 21

Book Value

Question 22

It is a columnar paper used as a preliminary step in the preparation of financial statements.

Answer 22

Worksheet