Ch4

Question 1

Earnings Management

Answer 1

The planned time of revenues, expenses, gains, & losses to reduce volatility in reported net income.

Question 2

Expense Recognition Principle

Answer 2

The principle that dictates that efforts (expenses) be recognized with results (revenues) in the period when the company makes efforts to generate those revenues.

Question 3

Fiscal Year

Answer 3

An accounting period that is one year long.

Question 4

income summary

Answer 4

A temporary account used in closing revenue and expense accounts.

Question 5

periodicity assumption

Answer 5

An assumption that the economic life of a business can be divided into artificial time periods.

Question 6

permanent accounts

Answer 6

Balance sheet accounts whose balances are carried forward to the next accounting period.

Question 7

Post - Closing Trial Balance

Answer 7

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Question 8

prepaid expenses

Answer 8

Expenses paid in cash before they are used or consumed.

Question 9

quality of earnings

Answer 9

Indicates the level of full and transparent information that a company provides to users of its financial statements.

Question 10

revenue recognition principle

Answer 10

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Question 11

Reversing Entry

Answer 11

An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.

Question 12

Temporary Accounts

Answer 12

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

Question 13

Unearned Revenues

Answer 13

Cash received and a liability recorded before services are performed.

Question 14

Useful Life

Answer 14

The length of service of a productive asset.

Question 15

Prepayments

Answer 15

Expenses paid in cash before they are used or consumed.

Question 16

Worksheet

Answer 16

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Question 17

Accrual - Basis Accounting

Answer 17

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company’s financial statements, even if cash was not exchanged.

Question 18

Accruals

Answer 18

Expenses or revenues that are recognized at a date earlier than the point when cash is exchanged.

Question 19

accrued expenses

Answer 19

Expenses incurred but not yet paid in cash or recorded.

Question 20

Accrued revenues

Answer 20

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

Question 21

Adjusted Trial Balance

Answer 21

A list of accounts and their balances after all adjustments have been made.

Question 22

adjusting entries

Answer 22

Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed.

Question 23

Book Value

Answer 23

The difference between the cost of a depreciable asset and its related accumulated depreciation.

Question 24

Cash Basis Accounting

Answer 24

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.

Question 25

Closing Entries

Answer 25

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders’ equity account, Retained Earnings.

Question 26

Contra Asset Account

Answer 26

An account that is offset against an asset account on the balance sheet.

Question 27

Deferrals

Answer 27

Expenses or revenues that are recognized at a date later than the point when cash was originally exchanged.

Question 28

Depreciation

Answer 28

The process of allocating the cost of an asset to expense over it’s useful life