Chapter 3 Flashcards
What states that we record revenue in the period in which we provide goods and services to customers?
The Revenue recognition principle
What states that we record expenses in the same period as the revenues that they help to generate?
The matching principle
Which statement best describes when expenses should be recorded?
a. Expenses are recorded when paid.
b. Expenses are recorded the day a company promises to pay.
c. Expenses are recorded when the cost is used to help produce revenue.
d. None of the above
c. Expenses are recorded when the cost is used to help produce revenue.
When is revenue recognized on an accrual basis?
When the goods and services are provided to customers
When is revenue recognized on a cash basis?
When cash is received
When are expanses recognized on an accrual basis?
In the period costs are used to help produce revenue
When are expenses recognized an a cash basis?
When cash is paid
Is accrual basis or cash basis apart of GAAP?
Accrual basis is apart of GAAP
What is the difference between accrual-basis accounting and cash-basis accounting?
Timing
Which of the following would be recorded as an expense under accrual-basis accounting?
a. The company purchases office supplies with cash and does not use the supplies.
b. The company uses utilities in the current period but does not pay cash.
c. The company provides services to customers for cash.
d. The company purchases equipment by borrowing from the bank.
b. The company uses utilities in the current period but does not pay cash
Which of the following would be recorded as an expense under cash-basis accounting?
a. The company purchases office supplies with cash and does not use the supplies.
b. The company uses utilities in the current period but does not pay cash.
c. The company provides services to customers for cash.
d. The company purchases equipment by borrowing from the bank.
a. The company purchases office supplies with cash and does not use the supplies.
List the 4 types of adjusting entries
- Prepaid Expenses
- Deferred Revenue
- Accrued Expenses
- Accrued Revenue
What are the costs of assets acquired in one period that will be recorded as an expense in a future period?
Prepaid Expenses
Fill in the Blank:
For a prepaid expense adjusting entry the debit is an ______ account and the credit is an _____ account
The debit is an expense account and the credit is an asset account
What is the formula to find Interest?
Principle account x rate x how many months
Which of the following is recorded with an adjusting entry associated with a prepaid expense?
a. Credit an asset
b. Debit a liability
c. Credit an expense
d. Debit an asset
a. Credit an asset
On December 1st you paid $6,000 for rent in advance. By the end of the year you have $5,500 prepaid rent remaining.
- How much prepaid rent expired?
- Make the journal entry
- Make the adjusting entry
- $500
- 12/1 Prepaid Rent $6,000
Cash $6,000 - 12/31 Rent Expense $500
Prepaid Rent $500
On December 6th you purchase supplies on account for $2,300. By the end of the year you have $1,300 remaining supplies.
- How much supplies was used?
- Make the journal entry
- Make the adjusting entry
- $1,000
- 12/6 Supplies $2,300
Accounts Payable $2,300 - 12/31 Supplies Expense $1,000
Supplies $1,000
If a prepaid expense says “Remaining equipment cost to be allocated” while dealing with equipment what is it?
Depreciation