CH 3 terminology

Question 1

Accrual

Answer 1

recognition of revenue or expense that has risen but not been recorded during the accounting period

Question 2

Accrual accounting

Answer 2

encompasses all the techniques accounts use to apply the matching rule

Question 3

Accrued expenses

Answer 3

expenses that have been built up over time and are due to be paid

Question 4

accrued revenues

Answer 4

revenue that has been earned but for which no cash has been received

Question 5

accumulated depreciation accounts

Answer 5

cumulative depreciation of an asset up to a single point in its life

Question 6

adjusted trial balance

Answer 6

list of all accounts and their balances

Question 7

adjusted entries

Answer 7

a set of journal entries recorded at the end of the accounting period to have an updated and accurate balances of all the accounts

Question 8

carrying value

Answer 8

accounting measure of value where the value of an asset or company is based on the figures in the company’s balance sheet

Question 9

carrying value formulas

Answer 9

physical assets: original cost - accumulated depreciation
intellectual assets: original cost - amortization expense

Question 10

Cash basis of accounting

Answer 10

accounting method where revenues and expenses are only acknowledged when the payment occurs

Question 11

closing entries

Answer 11

journal entries made at the end of an accounting period where data is moved from temporary accounts to permanent accounts

Question 12

continuity

Answer 12

what is the expected life of the business

Question 13

contra accounts

Answer 13

account used to reduce the value of a related account- contra account’s balance is the opposite of the associated account

Question 14

deferral

Answer 14

postponement of the recognition of an expense already paid or of revenue received in advance

Question 15

depreciation

Answer 15

accounting method of allocating the cost of a tangible asset over its useful life to account for declines in value over time

Question 16

earnings management

Answer 16

manipulation of revenues and expenses to achieve a specific outcome

Question 17

expenses

Answer 17

decreases in a stockholder’s equity resulting from the cost of the selling goods or rendering services and the cost of the activities necessary to carry on a business, such as attracting and serving customers

Question 18

fiscal year

Answer 18

12-month accounting period

Question 19

going concern

Answer 19

business will continue to operate indefinitely

Question 20

income summary account

Answer 20

income summary account

Question 21

interim periods

Answer 21

accounting periods of less than 12-months

Question 22

matching rule

Answer 22

expenses should be recognized in the same accounting period as the revenues to which they are related

Question 23

net income

Answer 23

net increase in stockholder equity that results from a company’s operations (revenue - expenses)

Question 24

net loss

Answer 24

when expenses exceed revenue

Question 25

periodicity

Answer 25

useful to estimate the business’s net income in terms of accounting periods even if the lifetime is uncertain

Question 26

permanent accounts

Answer 26

accounts that carry their end-of-period balances into the next accounting period

Question 27

post closing trial balance

Answer 27

balance after all temporary accounts have been closed

Question 28

prepaid expenses

Answer 28

expenses for things such as rent, supplies, and insurance, in advance

Question 29

profit

Answer 29

money left over after all expenses have been paid

Question 30

revenue recognition

Answer 30

process of determining when revenue should be recorded

Question 31

revenues

Answer 31

increase in stockholder’s equity resulting from selling goods, rendering services or performing other business activities

Question 32

temporary accounts

Answer 32

accounts that begin each accounting period with a zero balance, accumulate a balance during the period and are then cleared by closing entries

Question 33

unearned revenues

Answer 33

money received by an individual or company for a service or product that has yet to be provided or delivered

Question 34

cash flow yeild

Answer 34

ratio that compares the free cash flow per share a company is expected to earn against its market value per share