Ch 4

Question 0

Historical cost

Answer 0

Amount paid for an asset and used as basis
For recognizing it on balance sheet and
Carrying it on later balance sheets

Question 1

Recognition

Answer 1

Process of recording an item in a financial statement as

An asset, liability, revenue, expense, etc

Question 2

Current value

Answer 2

Amount of cash or it’s equivalent that

Could be received by selling an asset currently

Question 3

Cash basis accounting

Answer 3

System where revenues recognized when cash received

And expenses recognized when cash paid

Question 4

Accrual basis accounting

Answer 4

System where revenues recognized when earned

Expenses recognized when incurred

Question 5

Revenues

Answer 5

Inflows of assets or settlements of liabilities
From delivering or producing goods or
Conducting services

Question 6

Revenue recognition principle

Answer 6

Revenues recognized in income statement when
Realized, or realizable and earned

Note realized = exchanged for cash

Question 7

Matching principle

Answer 7

Association of revenue of period with

Costs necessary to generate revenue

Question 8

Expenses

Answer 8

Outflows of assets or incurrences of liabilities

For providing goods and services

Question 9

Adjusting entries

Answer 9

Journal entries made at end of period

By company using accrual basis accounting

Question 10

Salvage value

Answer 10

Amount company expects to receive when it sells

Asset at end of its useful life

Question 11

Straight line method

Answer 11

Assignment of an equal amount of depreciation to each period

Question 12

Contra account

Answer 12

Account with balance that is opposite of related account

Question 13

Deferral

Answer 13

Cash has been paid or received but expense

Or revenue has not yet been recognized

Question 14

Deferred expense, examples of?

Answer 14

Asset resulting from payment of cash before
incurrence of expense

Ex. Insurance policy, supplies, rent

Question 15

Deferred revenue, examples of?

Answer 15

Liability resulting from receipt of cash
Before recognition of revenue

Ex. Deposits for rent, subscriptions, gift certificates

Question 16

Accrual

Answer 16

Cash has not yet been paid or received

But expense has been incurred or revenue earned

Question 17

Accrued liability, examples of?

Answer 17

Liability resulting from recognition of expense before
Payment of cash

Ex. Salaries, wages, interest, tax, rent

Question 18

Accrued asset, examples of?

Answer 18

Asset resulting from recognition of revenue
Before receipt of cash

Ex. Interest, rent

Question 19

Accounting cycle

Answer 19

Series of steps performed each period and

Culminating with preparation of set of financial statements

Question 20

Worksheet

Answer 20

Device used at end of period to gather info needed
To prepare financial statements without recording and posting
Adjustment entries

Question 21

Real accounts

Answer 21

Balance sheet accounts, permanent

and not closed at end of period

Question 22

Nominal accounts

Answer 22

Revenue, expense, dividend, drawing accounts

Temporary and close at end of period

Question 23

Closing entries

Answer 23

Journal entries made at end of period to return balance

In nominal accounts to 0 and transfer, income or loss and dividends to retained earnings

Question 24

Interim statements

Answer 24

Financial statements prepared monthly, quarterly

Or at intervals less that a year