CHAPTER 3

Question 1

When is the transaction recorded in cash-basis accounting?

Answer 1

When currency is exchanged

Question 2

When is the transaction recorded in accrual accounting?

Answer 2

When earned.

Question 3

What qualifies a transaction as earned?

Answer 3

Acquired an asset
Earned revenue
Taken on a liability
Incurred an expense

Question 4

What is the IFRS definition of REVENUE?

Answer 4

The gross inflow of economic benefits during the period.

Question 5

What is the ASPE definition of REVENUE?

Answer 5

A transaction where good have been transfered
The amount of revenue is reliably measured
The customer pays when required

Question 6

What are examples of adjusting entries?

Answer 6

Deferrals
Depreciation
Accruals

Question 7

What are defferals?

Answer 7

Adjusting entries recorded when cash received in advance.

Question 8

What is depreciation?

Answer 8

adjusting entires recorded to show the future benefit declines with age.

Question 9

What are accruals?

Answer 9

Adjusting entries recorded when goods/services are delivered/received in advance.

Question 10

What is a prepaid expense?

Answer 10

An expense a company has paid for in advance.

Question 11

How is a prepaid expense recorded as when the payment is made?

Answer 11

Asset

Question 12

What qualifies as a deferral?

Answer 12

Prepaid rent
Supplies

Question 13

What is unearned revenue?

Answer 13

When a customer pays in advance to receiving good/service

Question 14

What is unearned revenue recorded as?

Answer 14

Liability

Question 15

Why is unearned revenue recored as a liability?

Answer 15

Because they’re required to provide good/service

Question 16

What are accrued expenses?

Answer 16

Unbilled, unpaid expenses

Question 17

What qualifies as an accrued expense?

Answer 17

Salaries
Intrest

Question 18

What are accrued revenues?

Answer 18

Earned revenue they haven’t billed yet or received cash

Question 19

What qualifies as an accrued revenue?

Answer 19

Services
Goods

Question 20

What is a current asset?

Answer 20

An asset that can be converted/consumed within 1 period

Question 21

What is a non-current asset?

Answer 21

An asset that cant be converted/consumed within 1 period

Question 22

What is a current liability?

Answer 22

A liability that is expected to be repaid within 1 period

Question 23

What in a non-current liability?

Answer 23

A liability that will be repaid in more than 1 period

Question 24

What is a classified balance sheet?

Answer 24

A balance sheet with:
Separate current and non-current assets and liabilities

Question 25

What is an unclassified balance sheet?

Answer 25

A balance sheet that doesn't separate anything

Question 26

Does the IFRS or ASPE use the classified balance sheet?

Answer 26

Yes

Question 27

Does the IFRS or ASPE use the unclassified balance sheet?

Answer 27

No

Question 28

What is report format?

Answer 28

A format where assets, liabilities and shareholders equity are listed in that order

Question 29

What is account format?

Answer 29

A format where everything is listed in T-accounts

Question 30

Does the IFRS and ASPE accept report format?

Answer 30

Yes

Question 31

Does the IFRS and ASPE accept account format?

Answer 31

Yes

Question 32

What does a single step income statement list?

Answer 32

All revenues together All expenses together Net income

Question 33

What does a multi-step income statement have?

Answer 33

Several subtotals

Question 34

What accounts are closed at the end of the period?

Answer 34

Revenue Expenses Dividends

Question 35

What are temporary accounts

Answer 35

Accounts that are closed at the end of the period

Question 36

What accounts are permanent accounts?

Answer 36

Assets Liabilities Shareholders Equity

Question 37

What are permanent accounts?

Answer 37

accounts that carry forward from year to year and becomes beginning balances

Question 38

How do you close accounts?

Answer 38

1- Debit revenues Credit retained earnings for revenue value 2- Credit expenses Debit retained earnings for expense value 3- Credit dividends Debit retained earnings for dividend value 4- Post to ledger

Question 39

Does the ending balance in retained earnings have to match the balance reported?

Answer 39

Yes

Question 40

What does net-working capital do?

Answer 40

It indicates a companies liquidity

Question 41

How do you calculate net working capital?

Answer 41

Current assets-current liabilities

Question 42

What does a high net working capital mean?

Answer 42

High liquidity

Question 43

What is the current ratio?

Answer 43

Current assets/current liabilities

Question 44

What is a high current ratio?

Answer 44

Anything above 1.50

Question 45

What is the debt ratio?

Answer 45

Liabilities/assets

Question 46

What is a good debt ratio?

Answer 46

A low ratio

Question 47

How do you avoid default?

Answer 47

Increase sales Decrease expenses Sell shares