Ch. 3

Question 1

Accounting method that records revenues only when cash is received and expenses only when cash is paid

Answer 1

Cash Basis accounting

Question 2

Accounting method that records revenues when earned and expenses when incurred

Answer 2

Accrual basis accounting

Question 3

Assumes that a business’ activity can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.

Answer 3

Time period Concept

Question 4

An accounting year of any 12 consecutive months that may or may not coincide with the calendar year

Answer 4

Fiscal Year

Question 5

Requires companies to record revenue when the entity satisfies each performance obligation. Are there revenues that have been earned that haven’t been recorded?

Answer 5

Revenue recognition principles

Question 6

What are the five steps of the revenue recognition principle.

Answer 6

1. Identify the contract with the customer
2. Identify the performance obligations in the contract.
3. Determine the transactions price
4. Allocate the transactions price to the performance obligations in the contract
5. Recognize revenue when the entity satisfies each performance obligation

Question 7

Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period.
Are there expenses that haven’t been journalized?

Answer 7

The Matching principle

Question 8

An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur

Answer 8

Adjusting entry

Question 9

Delays the recognition of revenue or expense to a date after the cash is received or paid

Answer 9

deferral

Question 10

Accrual

Answer 10

Recognizes the revenue or expense before the cash has been received or paid

Question 11

An asset created when a business makes advance payments of future expenses. Also called pre-paid expenses

Answer 11

Deferred Expense

Question 12

Long-lived tangible assets, such as land, buildings, and equipment. Also called plant assets

Answer 12

Property, Plant, and Equipment

Question 13

The process by which businesses spread the allocations of a plant asset’s cost over its useful life

Answer 13

Depreciation

Question 14

The expected value of a depreciable asset at the end of it’s useful life

Answer 14

residual value

Question 15

A depreciation method that allocates an equal amount of depreciation each year

Answer 15

Straight-line method

Question 16

an account is paired with and is listed immediately after it’s related account in the chart of accounts. It’s normal balance is the opposite of the balance to the account it’s related to.

Answer 16

Contra account

Question 17

A depreciable asset’s cost minus accumulated depreciation

Answer 17

Book Value

Question 18

A liability created when a business collects cash from customers in advance of completing a service or delivering a product

Answer 18

Deferred Revenue

Question 19

An expense that the business has incurred but has not yet paid

Answer 19

Accrued expense

Question 20

A revenue that has been earned but for which the cash has not yet been collected.

Answer 20

Accrued Revenue

Question 21

A list of all the accounts with their adjusted balances

Answer 21

adjusted trial balance

Question 22

First six steps of accounting process

Answer 22

1. Beginning account balance
2. analyze journal transactions
3. post journal entries in ledger
4. Prepare unadjusted trial balance
5. adjust and post adjusting entries
6. Prepare the adjusted trial balance

Question 23

An internal document that helps summarize data for the preparation of financial statements

Answer 23

worksheets

Question 24

What are the first 4 sections of a worksheet

Answer 24

1. Account names
2. Unadjusted trial balance
3. Adjustments
4. Adjusted trial balance