Chapter 3 Flashcards
Which method records transactions only when cash is received?
-Cash Basis Accounting
Which method records transaction when it occurs, regardless of when the cash is paid?
-Accrual Basis Accounting
Fiscal year
-An accounting time period that may not coincide with the calendar year
Revenue recognition principle
-Requires companies to record revenue when the entity satisfies each performance obligation
Time period concept
-Assumes that a business’s activities can be sliced into small time segments and that financial statements can be prepared for specific periods of time
Matching Principle
-Guides accounting for expenses, ensures that all expenses recorded when they are incurred during a period; Records expenses with the associated revenue in the same period
What are adjusting entries?
-An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses in which they are incurred
Give an example of a deferred expense.
-Prepaid expenses, advance payments of future expenses such as prepaid rent
If a piece of equipment costs $10,000 and has a useful life of 5 years, what is the depreciation expense for the first year using the straight-line method? Assume no residual value.
-Depreciation expense for the first year would be $2,000
If a piece of equipment costs $10,000 and has a useful life of 5 years, what is the depreciation expense for the first year using the straight-line method? Assume no residual value.
Using the information in the question above, what is the book value at the end of year 1?
-The book value would be $8,000
What is the journal entry for receiving cash from customers of $1,000 in advance for concert tickets before the concert has taken place?
-**Debit Cash and credit Service Revenue
Give an example of an accrued expense.
-Businesses often incur expenses before paying them, such as employee’s salary
What is the purpose of the adjusted trial balance, and how do we prepare it?
-The purpose of the of a trial balance is to ensure that total debits equal total credits, and can be prepared by listing all accounts with their adjusted balances
How is the unadjusted trial balance and the adjusted trial balance different?
- The adjusted trial balance is needed at the end of the period and compiles all the revenues and expenses incurred during the period.
- The unadjusted trial balance shows the beginning balances for accounts, before adjustments are made
What type of missing adjusting entry would cause the net income to be overstated and the assets to be overstated?
-Deferred Expenses
