Chapter 3 & 4

Question 1

Accrual basis of accounting

Answer 1

revenues are reported on the income statement in the period in which a service has been performed or a product has been delivered.

Question 2

cash basis of accounting

Answer 2

revenues are reported on the income statement in the period in which cash is received or paid.

Question 3

revenue recognition principle

Answer 3

revenues are recorded when services have been performed or products have been delivered to customers

Question 4

expense recognition principle

Answer 4

the expenses incurred in generating revenue must be reported in the same period as the related revenue.

also called matching principle

Question 5

adjusting process

Answer 5

the analysis and updating of accounts at the end of the period before the financial statements are prepared

Question 6

accruals

Answer 6

occurs when revenue has been earned or an expense has been incurred but has not been recorded

Question 7

deferrals

Answer 7

occurs when cash related to a future revenue or expense has been initially recorded as a liabilitiy or an assets

Question 8

unearned revenue

Answer 8

if cash received is related to future revenue, it is initially recorded as a liability

Question 9

prepaid expenses

Answer 9

if the cash paid is related to a future expense, it is initially recorded as an asset

Question 10

fixed assets / plant assets

Answer 10

are physical resources that are owned and used by a business and are permanent or have a long life

Question 11

depreciation

Answer 11

the decrease in usefulness

Question 12

depreciate

Answer 12

all fixed assets, except land, loose their usefulness

Question 13

depreciation expense

Answer 13

as a fixed asset depreciates, a portion of its costs should be recorded as an expense, this periodic expense is called this

Question 14

accumulated depreciation

Answer 14

also called contra accounts, or contra asset accounts – this accounts are dedicated from their related fixed asset accounts on the balance sheet

Question 15

book value

Answer 15

the difference between the two balances

Question 16

vertical analysis

Answer 16

comparing each item on a financial statement with a total amount from eh same statement is useful in analyzing relationship within the financial statement

Question 17

adjusted trial balance

Answer 17

verifies the equality of the total debit and credit balances before the finical statements gets are prepared

Question 18

income summary

Answer 18

an account to which the revenue and expense account balances are transferred at the end of a period

Question 19

current assets

Answer 19

cash and other assets that are expected to be converted to cash or sold or used up usually within one year or less, through the normal operations of the business

Question 20

temporary accounts

Answer 20

relate to one period and are not carried over

Question 21

permeant accounts

Answer 21

carried forward from year to year

Question 22

reversing enteries

Answer 22

the exact opposite of the related adjusting entry from the last day of the prior period