chapter 3

Question 1

accrual basis of accounting

Answer 1

A basis of accounting under which revenues and expenses are reported on the income statement in the period in which they are earned or incurred.

Cash may or may not be received from customers during this period.

requires expenses to be recorded when they are incurred, not necessarily when cash is paid.

Question 2

cash basis of accounting

Answer 2

A basis of accounting under which revenues and expenses 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 earned, which is when the services have been performed or products have been delivered to customers.

Question 4

Revenue is normally measured as the assets received, such as

Answer 4

cash or accounts receivable

Question 5

matching principle

Answer 5

A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

Question 6

adjusting process

Answer 6

An analysis and updating of the accounts when financial statements are prepared.

Question 7

adjusting entries

Answer 7

The journal entries that bring the accounts up to date at the end of the accounting period.

Question 8

what are The two general classifications of accounts requiring adjustment are as follows:

Answer 8

Accruals

Deferrals

Question 9

accrual

Answer 9

A revenue that has been earned or an expense that has been incurred but has not been recorded.

Question 10

deferral

Answer 10

A future revenue or expense initially recorded as a liability or asset.

Question 11

If the cash received is related to future revenue, it is

Answer 11

initially recorded as a liability called unearned revenue

Question 12

prepaid expense

Answer 12

Assets created by making advanced payments for expense items, such as insurance premiums or supplies, that will be used in the business in the future.

Question 13

Cash

Answer 13

asset

Question 14

Accounts Receivable

Answer 14

asset

Question 15

Supplies

Answer 15

asset

Question 16

Prepaid Insurance

Answer 16

asset

Question 17

Land

Answer 17

asset

Question 18

Office Equipment

Answer 18

asset

Question 19

Accumulated Depreciation—Office Equipment

Answer 19

asset

Question 20

Accounts Payable

Answer 20

liability

Question 21

Wages Payable

Answer 21

liability

Question 22

Unearned Rent

Answer 22

liability

Question 23

Common Stock

Answer 23

Stockholders’ Equity

Question 24

Retained Earnings

Answer 24

Stockholders’ Equity

Question 25

Dividends

Answer 25

Stockholders’ Equity

Question 26

Fees Earned

Answer 26

Revenue

Question 27

Rent Revenue

Answer 27

Revenue

Question 28

Wages Expense

Answer 28

Expense

Question 29

Supplies Expense

Answer 29

Expense

Question 30

Rent Expense

Answer 30

Expense

Question 31

Utilities Expense

Answer 31

Expense

Question 32

Insurance Expense

Answer 32

Expense

Question 33

Depreciation Expense

Answer 33

Expense

Question 34

Miscellaneous Expense

Answer 34

Expense

Question 35

Fixed assets or plant assets

Answer 35

in a sense, fixed assets are a type of long-term prepaid expense. Physical resources that are owned and used by a business and are permanent or have a long life; long-term or relatively permanent tangible assets such as equipment, machinery, buildings, and land that are used in normal business operations.

Question 36

depreciation

Answer 36

The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.

Question 37

depreciation expense

Answer 37

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Question 38

Accumulated Depreciation

Answer 38

The contra asset account credited when recording the depreciation of a fixed asset.

Question 39

contra accounts or contra asset accounts

Answer 39

An account offset against another account.

Question 40

the normal balance of a fixed asset account is a

Answer 40

debit

Question 41

the normal balance of an accumulated depreciation account is a

Answer 41

credit

Question 42

book value of the asset (or net book value)

Answer 42

the cost of a fixed asset -(minus)- its accumulated depreciation.

Question 43

adjusted trial balance

Answer 43

The trial balance prepared after all the adjusting entries have been posted.

Question 44

accrued revenue

Answer 44

revenues that have been earned and now need to be recorded.

Question 45

unearned revenue

Answer 45

Unearned revenues represent money received before it is earned, which is a liability.

Question 46

prepaid expense

Answer 46

Prepaid expenses are paid in advance of being used, and assets become expenses as they are used

Question 47

accrued expense

Answer 47

Accruals are expenses that have been incurred and now need to be recorded.

Question 48

unearned fees

Answer 48

in accounting is money a business collects from a customer up front for services the company has yet to perform