Chap 3: Adjusting and Closing Entries

Question 1

DEPRECIATION

Answer 1

The allocation of the cost of a long term asset to Expense over its useful life

Question 2

Land / buildings / equipment / furniture are examples of?

Answer 2

Long term assets

Question 3

Does land depreciate?

Answer 3

No; does not require a deferred expense

Question 4

Formula for STRAIGHT LINE depreciation

Answer 4

(Cost of Asset - Salvage value of asset) / Useful life of asset = depreciation for one year

Question 5

Fiscal year

Answer 5

Any consecutive 12 month period that a business chooses for financial reporting

Question 6

When does a fiscal year end?

Answer 6

Year end date is the low point in business activity for the year

Question 7

ACCRUAL ACCOUNTING

Answer 7

Records revenues when earned and expenses when incurred without regards to when cash is exchanged

Question 8

Revenue Recognition Principle

Answer 8

Revenue should be recognized or recorded when they are earned, regardless of when cash is received

Question 9

Matching Principle

Answer 9

Expenses should be matched with the revenues they help to generate (should be recorded when incurred, regardless of when they are paid)

Question 10

R.E.D.

Answer 10

Revenues / Expenses / Dividends

Question 11

When are R.E.D. Accounts closed?

Answer 11

At the end of the year

Question 12

Prepaid Rent

Answer 12

Deferred Expense