Exam 2: Ch. 3 & 4 Vocabulary

Question 1

Record revenues when goods and services are provided to customers, and record expenses for the costs used to provide those goods and services to customers

Answer 1

Accrual-basis accounting

Question 2

Record revenues at the time cash is received and record expenses at the time cash is paid. If cash is not received or paid, no transaction is recorded

Answer 2

Cash-basis accounting

Question 3

Entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities) that have occurred during the period but that we have not yet recorded

Answer 3

Adjusting entries

Question 4

A company pays cash (or has an obligation to pay cash) to acquire an asset that is not used until a later period

Answer 4

Prepaid expenses

Question 5

A company receives cash in advance from customers, but goods and services won’t be provided until a later period.

Answer 5

Deferred revenues

Question 6

A company incurs costs in the current period but hasn’t yet paid cash for those costs.

Answer 6

Accrued expenses

Question 7

A company provides products or services but hasn’t yet received cash.

Answer 7

Accrued revenues

Question 8

the process of allocating the cost of a long-term asset to expense over its useful life

Answer 8

Depreciation

Question 9

an account with a balance that is opposite to that of its related accounts

Answer 9

Contra account

Question 10

an asset’s original cost less accumulated depreciation (AKA carrying value because it’s the amount the asset is “carried” in the books)

Answer 10

Book value

Question 11

a list of all accounts and their balances after we have updated account balances for adjusting entries

Answer 11

Adjusted trial balance

Question 12

groups a company’s assets into current assets and long-term assets and separates liabilities into current liabilities and long-term liabilities

Answer 12

Classified balance sheet

Question 13

they provide a benefit within the next year

Answer 13

Current assets

Question 14

how quickly an asset can be converted to cash

Answer 14

liquidity

Question 15

average time it takes to provide a service or manufacture products to the time the company collects customers’ cash

Answer 15

Operating cycle

Question 16

they provide a benefit for more than one year

Answer 16

Long-term assets

Question 17

investments in another company’s debt or stock

Answer 17

Long-term investments

Question 18

long-term productive assets used in the normal course of business such as land, buildings, equipment, and machinery

Answer 18

Property, plant, and equipment

Question 19

assets that lack physical substance but have long-term value to a company, such as patents, copyrights, trademarks, and franchises

Answer 19

Intangible assets

Question 20

they are due within one year of the balance sheet date

Answer 20

Current liabilities

Question 21

amounts owed for previous purchases of supplies on account

Answer 21

Accounts payable

Question 22

amounts owed to employees

Answer 22

Salaries payable

Question 23

amounts owed to the utility company

Answer 23

Utilities payable

Question 24

the amount of interest a company owes to its lenders but has not yet paid.

Answer 24

interest payable

Question 25

they are due in more than one year

Answer 25

Long-term liabilities

Question 26

all accounts that appear in the balance sheet; account balances are carried forward from period to period

Answer 26

Permanent accounts

Question 27

all revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the Retained Earnings account at the end of the period

Answer 27

Temporary accounts

Question 28

entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account

Answer 28

Closing entries

Question 29

a list of all accounts and their balances at a particular date after we have updated account balances for closing entries

Answer 29

Post-closing trial balance

Question 30

the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources

Answer 30

occupational fraud

Question 31

the three elements present for every fraud— motivation, rationalization, and opportunity

Answer 31

Fraud triangle

Question 32

a company’s plans to (1) safeguard the company’s assets and (2) improve the accuracy and reliability of accounting information

Answer 32

Internal controls

Question 33

known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor–client relations and internal control procedures

Answer 33

Sarbanes-Oxley Act

Question 34

designed to keep errors or fraud from occurring in the first place

Answer 34

Preventive controls

Question 35

Authorizing transactions, recording transactions, and controlling related assets should be separated among employees

Answer 35

Separation of duties

Question 36

designed to detect errors or fraud that have already occurred.

Answer 36

Detective controls

Question 37

two or more people acting in coordination to circumvent internal controls (more difficult to detect and typically several times more severe than fraud involving one person)

Answer 37

Collusion

Question 38

currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), credit card and debit card sales, and cash equivalents.

Answer 38

Cash

Question 39

short-term investments that have a maturity date no longer than three months from the date of purchase (common examples are money market funds, Treasury bills, and certificates of deposit)

Answer 39

Cash equivalents

Question 40

matching the balance of cash in the bank account with the balance of cash in the company’s own records

Answer 40

Bank reconciliation

Question 41

cash receipts of the company that have not been added to the bank’s record of the company’s balance

Answer 41

Deposits outstanding

Question 42

checks the company has written that have not been subtracted from the bank’s record of the company’s balance

Answer 42

Checks outstanding

Question 43

company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company

Answer 43

Purchase cards

Question 44

small amount of cash kept on hand to pay for minor purchases

Answer 44

Petty cash fund

Question 45

cash that is not available for current operations; examples include cash set aside for specific purposes such as repaying debt, purchasing equipment, or making future investments

Answer 45

restricted cash