Chapter 4

Question 1

How do you adjust revenue/expense that was earned/incurred and not yet recorded?

Answer 1

If cash was received/paid in the past then it is a deferral
If cash will be received/paid in the future then it is an accrual

Question 2

What is a deferred (unearned) revenue?

Answer 2

When a customer pays for goods/services before the company delivers them

Question 3

What is an accrued revenue?

Answer 3

Revenues that have been earned but have not yet been recorded

Question 4

What are deferred expenses?

Answer 4

Assets that are used over time to generate revenues, ie. supplies, rent, buildings, etc.

Question 5

What are accrued expenses?

Answer 5

When the company has incurred an expense but the cash will be paid next period

Question 6

What is depreciation?

Answer 6

An allocation of the cost of buildings and equipment over their estimated useful lives to the organization

Question 7

What is the net book value?

Answer 7

The ending balance in the property and equipment accounts minus the ending balance in the accumulated depreciation account

Question 8

What are contra-accounts?

Answer 8

Accounts which are directly linked to another account but with an opposite balance
Accumulated depreciation and treasury stock are examples

Question 9

What does each adjusting entry always include?

Answer 9

At least 1 income statement account and 1 balance sheet account

Question 10

How to calculate total asset turnover ratio?

Answer 10

Net sales/average total assets

Question 11

How do you calculate average total assets?

Answer 11

(Beginning balance + ending balance)/2