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Accounting 1 > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

How do accountants divide up a business?

A

into artificial time periods

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2
Q

An assumption that accountants can divide the economic life of a business into artificial time periods

A

time period assumption

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3
Q

what are typical accounting periods

A

a month, quarter or year

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4
Q

Monthly or quarterly accounting time periods.

A

interim periods

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5
Q

An accounting period that is one year in length.

A

fiscal year

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6
Q

An accounting period that extends from January 1 to December 31

A

calendar year

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7
Q

Accounting basis in which companies record transactions that change a company’s financial statements in the periods in which the events occur.

A

accrual basis accounting

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8
Q

Accounting basis in which companies record revenue when they receive cash and an expense when they pay out cash

A

cash basis accounting

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9
Q

When a company agrees to perform a service or sell a product to a customer, they have what?

A

performance obligation

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10
Q

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied

A

revenue recognition principle

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11
Q

The principles that companies match efforts (expenses) with accomplishments (revenues)

A

Expense recognition principle (matching principle)

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12
Q

Entries made at the end of an accounting period to insure that companies follow the revenue recognition and expense recognition principles.

A

adjusting entries

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13
Q

the first pulling together of the transaction data

A

trial balance

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14
Q

what are some reasons that a trial balance may not contain up to date and complete data

A
  • Some events are not recorded daily because it is not efficient to do so
  • Some costs are not recorded daily because these costs expire with the passage of time rather than as a result of recurring daily transactions
  • Some items may be unrecorded
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15
Q

Adjusting entries for either prepaid expenses or unearned revenues. (postpone or delay)

A

deferrals

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16
Q

expenses paid in cash before they are used or consumed

A

prepaid expenses (prepayments)

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17
Q

prior to adjustments, how can assets and and expenses be explained?

A

Assets are overstated and expenses are understated

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18
Q

The length of service of a long-lived asset.

A

useful life

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19
Q

The process of allocating the cost of an asset to expense over its useful life.

A

depreciation

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20
Q

An account offset against an asset account on the balance sheet.

A

contra asset account

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21
Q

The difference between the cost of a depreciable asset and its related accumulated depreciation.

A

book value

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22
Q

A liability recorded for cash received before services are performed

A

unearned revenue

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23
Q

prior to adjustments how can liabilities and revenues be explained?

A

liabilities are overstated and revenues are understated

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24
Q

Adjusting entries for either accrued revenues or accrued expenses.

A

accruals

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25
Q

Revenues for service performed but not yet received in cash or recorded

A

accrued revenues

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26
Q

Expenses incurred but not yet paid in cash or recorded

A

accrued expenses

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27
Q

how is interest determined?

A
  • The face value of the note
  • The interest rate which is expressed as an annual rate
  • The length of time the note is outstanding
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28
Q

A list of accounts and their balances after the company has made all adjustments

A

adjusted trial balance

29
Q

The quality of information that indicates the information makes a difference in a decision

A

relevance

30
Q

what makes information considered relevant?

A

if it has predictive value or confirmatory value

31
Q

helps provide accurate expectations about the future

A

predictive value

32
Q

confirms or corrects prior expectations

A

confirmatory value

33
Q

A company-specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor.

A

materiality

34
Q

Information that accurately depicts what really happened.

Information must be complete, neutral and free from error.

A

faithful representation

35
Q

What does the FASB also consider useful information?

A

comparability, consistency, verifiability, timeliness, and understandability

36
Q

Ability to compare the accounting information of different companies because they use the same accounting principles

A

comparability

37
Q

Use of the same accounting principles and methods from year to year within a company.

A

consistency

38
Q

The quality of information that occurs when independent observers, using the same methods, obtain similar results

A

verifiable

39
Q

Information that is available to decision-makers before it loses its capacity to influence decisions

A

timely

40
Q

Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning.

A

understandability

41
Q

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

A

monetary unit assumption

42
Q

An assumption that every economic entity can be separately identified and accounted for.

A

economic entity assumption

43
Q

an assumption that accountants can divide the economic life of a business into artificial time periods

A

time period assumption

44
Q

The assumption that the company will continue in operation for the foreseeable future

A

going concern assumption

45
Q

An accounting principle that states that companies should record assets at their cost.

A

historical cost principle

46
Q

Assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

A

fair value principle

47
Q

the principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied

A

revenue recognition principle

48
Q

the principle that companies match efforts (expenses) with accomplishments (revenues)

A

Expense Recognition Principle (matching principle)

49
Q

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users

A

full disclosure principle

50
Q

Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

A

cost constraint

51
Q

what is always the adjusting entry for depreciation

A

depreciation expense
Accumulated Depreciation
(account being depreciated)

52
Q

what is always the adjusting entry for interest?

A

Interest expense

interest payable

53
Q

what is always the adjusting entry for unearned revenue?

A

unearned revenue

Service revenue

54
Q

what is always the adjusting entry for supplies

A

supplies expense

supplies

55
Q

what is always the adjusting entry for insurance

A 
insurance expense
insurance prepaid (payable)
56
Q

what is always the adjusting entry for performed services that were not recorded?

A

Accounts Receivable

Service Revenue

57
Q

what type of accounting are we learning?

A

accrual basis accounting

58
Q

what do adjusting entries ensure?

A

that the revenue recognition and expense recognition principles are followed

59
Q

When do adjusting entries happen and what do they include (in a business setting)

A

every time a company prepares a financial statement.

it includes one income statement account and one balance sheet account

60
Q

what are the two different types of adjusting entries

A

deferrals and accruals

61
Q

what are the subcategories of deferrals?

A

Prepaid expenses and unearned revenue

62
Q

what are the subcategories of accruals?

A

Accrued revenues and accrued expenses

63
Q

when expenses are prepaid, what happens to the asset account?

A

it increases

64
Q

what are costs that expire with the passage of time or through use?

A

prepaid expenses

65
Q

what is an accumulated depreciation account?

A

an account that keeps track of the total amount of depreciation expense taken over the life of the asset

66
Q

is the normal balance of a contra account a debit or credit?

A

credit

67
Q

why is using a contra account preferable?

A

it discloses both the original cost of the equipment and the total cost that has been expensed to date

68
Q

what are the two qualities that useful information should possess?

A

relevance and faithful representation

Accounting 1 (3 decks)

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