Chapter 3 Terms

Question 1

Accrual Basis

Answer 1

Records when services and products are delivered and when expenses are incurred.*

Question 2

Cash Basis

Answer 2

Records revenue when cash is received and records expense when cash is paid.

Question 3

Deferred Expenses

Answer 3

Assets paid in advance of receiving their benefit.

(example: Prepaid Insurance)

Question 4

Deferral of Revenue

Answer 4

Cash received in advance of providing goods and services.

(example: unearned revenue)

Question 5

Accrued Expenses

Answer 5

Cost incurred in a period that is both unpaid and unrecorded

(example: wages between pay periods)

Question 6

Accrued Revenues

Answer 6

Revenue earned that in a period that is both unrecorded and not received.

(example: accounts receivable per day of service provided)

Question 7

Temporary Account

Answer 7

Accounts that close (zero out) at the end of a period.
(Revenue, Expenses, Dividends, and Income Summary)

Question 8

Permanent Accounts

Answer 8

do not close at the end of a period, and retain their balance.