Chap 3 & 4

Question 1

Accounting Period

Answer 1

Length of time covered by financial statements

Question 1

Accrual Basis Accounting

Answer 1

Accounting system that recognizes revenues when goods or services are provided and expenses when incurred; the basis for GAAP

Question 2

Accrued Expenses

Answer 2

Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities.

Question 3

Accounting Cycle

Answer 3

Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post closing trial balance

Question 4

Prepaid Expenses

Answer 4

Items paid for in advance of receiving their benefits; classified as assets

Question 5

Adjusting Entry

Answer 5

Journal Entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account.

Question 6

Income Summary

Answer 6

Temporary account used in the closing process of the revenue and expenses account; its balanced by the capital account

Question 7

Temporary Accounts

Answer 7

Accounts used to record revenues, expenses, and withdrawals; they close at the end of each period.

Question 8

Permanent Accounts

Answer 8

Accounts that reflect activities to one or more future periods; balance sheet accounts whose balances are not closed.

Question 9

Straight-line depreciation method

Answer 9

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Question 10

Accrued Revenues

Answer 10

Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenues.

Question 11

Accumulated Depreciation

Answer 11

Cumulative sum of all depreciation expense recorded for an asset.

Question 12

Depreciation

Answer 12

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Question 13

Unadjusted Trial Balance

Answer 13

List of accounts and balances prepared before accounting adjustments are recorded and posted.

Question 14

Adjusted Trial Balance

Answer 14

List of accounts and balances prepared after period-end adjustments are recorded and posted.

Question 15

Contra Account

Answer 15

Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account’s balance.