Chapter 3 Vocab

Question 1

Time Period Assumption

Answer 1

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

Question 2

Interim Period

Answer 2

Monthly or quarterly accounting time periods.

Question 3

Fiscal Year

Answer 3

An accounting period that is one year in length.

Question 4

Calendar Year

Answer 4

An accounting period that extends from January 1 to December 31.

Question 5

Accrual Basis Accounting

Answer 5

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

Question 6

Cash-basis accounting

Answer 6

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

Question 7

Revenue Recognition Principle

Answer 7

The principle that companies recognize revenue in the accounting period in which it is earned.

Question 8

Expense Recognition Principle

Answer 8

The principle that companies match efforts (expenses) with accomplishments (revenues).

Question 9

Adjusting Entries

Answer 9

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

Question 10

Deferrals

Answer 10

Adjusting entries for either prepaid expenses or unearned revenues.

Question 11

Accruals

Answer 11

Adjusting entries for either accrued revenues or accrued expenses.

Question 12

Useful Life

Answer 12

The length of service of a long-lived asset.

Question 13

Depreciation

Answer 13

The allocation of the cost of an asset to expense over its useful life in a ration and systemic manner.

Question 14

Contra Asset Account

Answer 14

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

Question 15

Book Value

Answer 15

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