Accrual Basis Accounting and Adjusting

Question 1

A ______ usually begins with the first day of a month and ends 12 months later on the last day of a month

Answer 1

fiscal year

Question 2

Many businesses use the ___________ ( ) as their preferred fiscal period.

Answer 2

calendar year (January 1 to December 31)

Question 3

Under ____________, companies record transactions that change a company’s financial statements in the periods in which the events occur

Answer 3

accrual-basis accounting

Question 4

Under _________ to determine net income means companies recognize revenues when they perform services (rather than when they receive cash)

Answer 4

the accrual basis

Question 5

Under the accrual basis, companies determine net income by …

Answer 5

recognizing revenues when they perform services (rather than when they receive cash)

Question 6

Under the accrual basis, expenses are recognized _____ rather than when ________

Answer 6

when they are incurred [rather than when] they are paid in cash

Question 7

An alternative to the accrual basis is the _________

Answer 7

cash-basis accounting

Question 8

Under the cash basis, companies record revenue ….

Answer 8

at the time they receive cash

Question 9

The cash basis may not recognize revenue in a period if …

Answer 9

that performance obligation is satisfied

Question 10

Accrual or Cash Basis

Appealing due to its simplicity, but it often produces misleading financial statements

Answer 10

Cash-basis

Question 11

Accrual or Cash Basis

Required by GAAP

Accrual-Basis Accounting and Adjusting

Answer 11

Accrual-basis

Accrual-Basis Accounting and Adjusting

Question 12

When a company agrees to perform a service or sell a product to a customer, it has a …

Recognizing Revenues and Expenses

Answer 12

performance obligation

Recognizing Revenues and Expenses

Question 13

The revenue recognition principle requires that companies …

Recognizing Revenues and Expenses

Answer 13

recognize revenue in the accounting period in which the performance obligation is satisfied

Recognizing Revenues and Expenses

Question 14

Name the concept:

Requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied

Answer 14

revenue recognition principle

defintions

Question 15

fill in the blank

Revenue recognition results from a ___ step process

Answer 15

5

Recognizing Revenues and Expenses

Question 16

step 1

Revenue Recognition Process

Recognizing Revenues and Expenses

Answer 16

Identify the contract with customers

Recognizing Revenues and Expenses

Question 17

step 2

Revenue Recognition Process

Recognizing Revenues and Expenses

Answer 17

Identify the separate performance obligations in the contract

Recognizing Revenues and Expenses

Question 18

step 3

Revenue Recognition Process

Recognizing Revenues and Expenses

Answer 18

Determine the transaction price

Recognizing Revenues and Expenses

Question 19

step 4

Revenue Recognition Process

Recognizing Revenues and Expenses

Answer 19

Allocate the transaction price to the separate performance obligations

Recognizing Revenues and Expenses

Question 20

step 5

Revenue Recognition Process

Recognizing Revenues and Expenses

Answer 20

Recognize revenue when each performance obligation is satisfied

Recognizing Revenues and Expenses

Question 21

Name the concept:

requires that companies recognize expenses in the period in which they make efforts (consume assets or incur liabilities) to generate revenue

definitions

Answer 21

Expense Recognition Principle

definitions

Question 22

finish the sentence

Accountants follow a simple rule in recognizing expenses:

Recognizing Revenues and Expenses

Answer 22

“Let the expenses follow the revenues.” Thus, expense recognition is tied to revenue recogntion.

Recognizing Revenues and Expenses

Question 23

define

Time Period Assumption

Adjusting the accounts

Answer 23

Economic life of business can be divided into artificial time periods

Definitions

Question 24

define

adjusting entries

Adjusting the accounts

Answer 24

ensure that the revenue recognition and expense recognition principles are followed

Adjusting the accounts

Question 25

Why are adjusting entries necessary?

Adjusting the accounts

Answer 25

the trial balance—the first pulling together of the transaction data—may not contain up-to-date and complete data

Adjusting the accounts

Question 26

multiple reasons

Why might the trial balance not contain up-to-date and complete data?

Adjusting the accounts

Answer 26

Some events are not recorded daily because it is not efficient to do so.

Some costs are not recorded during the accounting period b ecause these costs expire with the passage of time rather than as a result of recurring daily transactions.

Some items may be unrecorded

Adjusting the accounts

Question 27

account types

Every adjusting entry will include ____ and _____.

Adjusting the accounts

Answer 27

one income statement account [and] one balance sheet account

Trial Balance

Question 28

name types

adjusting entries are classified as:

Types of adjusting entries

Answer 28

deferrals or accruals

Types of adjusting entries

Question 29

enumerate subcategories within each:

deferrals

Types of adjusting entries

Answer 29

1. prepaid expenses
2. unearned revenues

class of adjusting entries

Question 30

define

prepaid expenses

Types of adjusting entries

Answer 30

Expenses paid in cash and recorded as assets before they are used

definitions

Question 31

define

unearned revenues

Types of adjusting entries

Answer 31

Cash received and recorded as a liability before services are performed

definitions

Question 32

define

Accrued expenses

Types of adjusting entries

Answer 32

Expenses incurred but not yet paid in cash or recorded

defintions

Question 33

define

Acrrued revenues

Types of adjusting entries

Answer 33

Revenues for services performed but not yet received in cash or recorded

definitions

Question 34

define

deferrals

Types of adjusting entries

Answer 34

expenses or revenues that are recognized ata date later than the point when cash was originally exchanged

defintions