Chapter 4: Accrual Accounting Concepts

Question 1

accrual-basis accounting

Answer 1

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

Question 2

accrued expenses

Answer 2

expenses incurred but not yet paid in cash or recorded.

Question 3

accured revenues

Answer 3

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

Question 4

adjusted trial balance

Answer 4

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

Question 5

adjusting entries

Answer 5

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

Question 6

book value

Answer 6

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

Question 7

cash-basis accounting

Answer 7

accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.

Question 8

closing entries

Answer 8

entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholder’s equity account, retained earnings.

Question 9

contra asset account

Answer 9

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

Question 10

depreciation

Answer 10

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

Question 11

earnings managements

Answer 11

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

Question 12

expense recognition principle (matching principle)

Answer 12

the principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.

Question 13

fiscal year

Answer 13

an accounting period that is one year long.

Question 14

income summary

Answer 14

a temporary account used in closing revenue and expense accounts.

Question 15

periodicity assumption

Answer 15

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

Question 16

permanent accounts

Answer 16

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

Question 17

post-closing trial balance

Answer 17

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

Question 18

prepaid expenses (prepayments)

Answer 18

expenses paid in cash before they are used or consumed.

Question 19

quality of earnings

Answer 19

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

Question 20

revenue recognition principle

Answer 20

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

Question 21

reversing entry

Answer 21

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

Question 22

temporary accounts

Answer 22

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

Question 23

unearned revenues

Answer 23

cash received and a liability recorded before services are performed.

Question 24

useful life

Answer 24

the length of service of a productive asset.

Question 25

worksheet

Answer 25

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