Chapter 3

Question 1

Time period concept

Answer 1

Assumes the a business’s activities can be sliced into small time segments and that financial statements can be prepared for specific periods.

Example: month, quarter, or year

Question 2

Fiscal Year

Answer 2

12 month accounting period used for annual financial statements

Question 3

Revenue recognition principal

Answer 3

Tells accountant when to record revenue and requires companies to follow a 5 step process:

1. Identify the contract with the customer
2. Identify the performance obligations
   3.determine the transaction price
3. Allocate the transaction price to the performance obligations in the contract
   5.recognize revenue when (or as) the entity satisfies each performance obligation

Question 4

Matching Principal / Expense Recognition Principal
(3)

Answer 4

1. Guides Accounting for expenses
2. Ensures all expenses are recorded when they are incurred during the period
3. Ensures expenses are matched against the revenues of the period

Question 5

Adjusting entry

Answer 5

Completed at the end of the accounting period and recordsrevenues to the period in which they are earned and expensed to the period in which they occur.

Question 6

Deferred Expenses \ Prepaid Expenses

Answer 6

Advance payment of future expense
Example: prepaid rent or Insurance

Question 7

PP&E or FF&E

Answer 7

Property, plant, and equipment also called plant assets are long lived tangible assets

Question 8

Residual value

Answer 8

Expected value of a depr equable asset at the end of its useful life

Question 9

Straight Line Depreciation Method

Answer 9

A depreciation method that allocates an equal amount of depreciation each year

(cost-residual value) / useful life

Question 10

Contra account

Answer 10

An account that is paired with, and is listed immediately after, it’s related account in the chart of accounts and associated financial statement and whose normal balance is the opposite of the normal balance of the related account

Question 11

Book value

Answer 11

Cost - accumulated depreciation = book value

Furniture = 18,000
Less accumulated depreciation-furniture = (300)
Book value of furniture = 17,000

Question 12

Deferred revenue

Answer 12

A liability created when a business collects cash from customers in advance of completing a service or delivering a good

Question 13

Accrued expense

Answer 13

An expense that the business has incurred but has not yet paid