chapter four: vocab

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 statements even if cash was not exchanged

Question 2

accurals

Answer 2

expenses or revenues that are recognized at a date earlier than the point when cash is exchanged

Question 3

accrued expenses

Answer 3

expenses incurred but not yet paid in cash or recorded

Question 4

accrued revenues

Answer 4

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

Question 5

adjusted trial balance

Answer 5

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

Question 6

adjusted entries

Answer 6

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

Question 7

book value

Answer 7

the difference between the cost of a depreciable asset and it’s related accumulated depreciation

Question 8

cash basis accounting

Answer 8

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

Question 9

closing entries

Answer 9

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

Question 10

contra asset account

Answer 10

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

Question 11

deferrals

Answer 11

expenses or revenues that are recognized at a date later than the point when cash was originally exchanged

Question 12

depreciation

Answer 12

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

Question 13

earnings management

Answer 13

the planned timing of revenues, expenses, gains, and losses to reduce volatility in reported net income

Question 14

expense recognition principle

Answer 14

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

Question 15

fiscal year

Answer 15

an accounting period that is one year long

Question 16

income summary

Answer 16

a temporary account used in closing revenue and expense accounts

Question 17

periodicity assumption

Answer 17

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

Question 18

permanent accounts

Answer 18

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

Question 19

post-closing trial balance

Answer 19

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

Question 20

prepaid expenses (prepayments)

Answer 20

expenses paid in cash before they are used or consumed

Question 21

quality of earnings

Answer 21

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

Question 22

revenue recognition principle

Answer 22

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

Question 23

reversing entry

Answer 23

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

Question 24

temporary accounts

Answer 24

revenue, expense, and dividend accounts whose balances a company transfers to retained earnings at the end of an accounting period

Question 25

unearned revenues

Answer 25

cash received and a liability recorded before services are performed

Question 26

useful life

Answer 26

the length of a service of a productive asset

Question 27

worksheet

Answer 27

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