Chapter 4 Flashcards
Accrual-Basis Accounting
Companies record transactions in the period in which the events occur.
Periodicity Assumption
Accountants divide the economic life of a business into artificial time periods.
Expense Recognition Principle
Efforts/expenses should be matched with results/revenues.
Order of accounting cycle
- Analyze
- Journalize
- Post
- Trial Balance
- Journalize and post AJE - deferrals/accruals
- Adj. Trial Balance
- Financial Statements
- Closing Entries
- Post Closing TB
AJPTJAFCP
Assets prepayments become revenues when they expire.
False
A contra asset account is subtracted from a related account in the balance sheet
True
The cost of depreciable asset less accumulated depreciation reflect the book value of an asset
True
Unearned revenue is a prepayment that requires and adj. entry when services are performed.
True
ACCRUAL OR DEFERRAL?
Revenues earned but not yet received in cash or recorded.
Accrual
ACCRUAL OR DEFERRAL?
Expenses paid in cash and recorded as assets before they are used or consumed.
Deferral
ACCRUAL OR DEFERRAL?
Cash received and recorded as liabilities before revenue is earned.
Accrual
Book Value
The difference between the cost of a depreciable asset and it’s related accumulated depreciation.
Quality of Earnings
Indicated the level of full and transparent information that a company provides to users of its financial statements
Revenue Recognition Principle
Principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.
Expense Recognition Principle (Matching Principle)
Principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.
