Chapter 4 - Accrual Accounting Concepts

Question 1

A list of permanent accounts and their balances after a company as journalized and posted closing entries.

Answer 1

Post-closing trial balance

Question 2

Expenses paid in cash before they are used or consumed.

Answer 2

Prepaid expenses (prepayments)

Question 3

Indicates the level of full and transparent information that a company provides to users of its financial statements.

Answer 3

Quality of earnings

Question 4

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Answer 4

Revenue recognition principle

Question 5

An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.

Answer 5

Reversing entry

Question 6

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

Answer 6

Temporary accounts

Question 7

Cash received and a liability recorded before services are performed.

Answer 7

Unearned revenues

Question 8

The length of service of a productive asset.

Answer 8

Useful life

Question 9

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Answer 9

Worksheet

Question 10

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company’s financial statements, even if cash was not exchanged.

Answer 10

Accrual-basis accounting

Question 11

Expenses incurred but not yet paid in cash or recorded.

Answer 11

Accrued expenses

Question 12

Revenues for services performed but not yet received in cash or recorded.

Answer 12

Accrued revenues

Question 13

A list of accounts and their balances after all adjustments have been made.

Answer 13

Adjusted trial balance

Question 14

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

Answer 14

Adjusting entries

Question 15

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

Answer 15

Book value

Question 16

Accounting basis in which a company records revenue only when its received cash and an expenses only when its pays cash.

Answer 16

Cash-basis accounting

Question 17

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders’ equity account, Retained Earnings.

Answer 17

Closing entries

Question 18

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

Answer 18

Contra asset account

Question 19

The process of allocating the cost of an asset to expense over its useful life.

Answer 19

Depreciation

Question 20

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.

Answer 20

Earnings management

Question 21

The principle that dictates that efforts (expenses) be recognized with results (revenues) in the period when the company makes efforts to generate those revenues.

Answer 21

Expense recognition principle

Question 22

An accounting period that is one year long.

Answer 22

Fiscal year

Question 23

A temporary account used in closing revenue and expense accounts.

Answer 23

Income Summary

Question 24

An assumption that the economic life of a business can be divided into artificial time periods.

Answer 24

Periodicity assumption

Question 25

Balance sheet accounts whose balances are carried forward to the next accounting period.

Answer 25

Permanent accounts