Exam 3 (Modules 6 & 7)

Question 1

allows a company’s activities to be divided into informal time periods for which financial statements can be prepared

Answer 1

time period assumption

Question 2

runs from january 1 to december 31

Answer 2

calendar year

Question 3

a one year period (12 months) that companies and governments use for financial reporting and budgeting

Answer 3

fiscal year

Question 4

journal entries usually made at the end of an accounting period to allocate revenues and expenses to the period in which they actually occured

Answer 4

adjusting entries

Question 5

What are the four basic types of adjusting entries?

Answer 5

accured expenses & revenues; deferred (prepaid expenses) & revenues

Question 6

an accounting adjustment used to track and record…

• revenues that have been earned but not received
• expenses that have been incurred but not paid

Answer 6

accured expenses

Question 7

the price paid to borrow money

Answer 7

interest

Question 8

rate of interest

Answer 8

interest rate

Question 9

the amount of money still owed on a loan

Answer 9

principal

Question 10

Whats equation for interest?

Answer 10

interest = principal * rate * time or I=PRT

Question 11

revenues that are earned in one accounting period (i.e. the activity) but wont be received until a later accounting period

Answer 11

accured revenues

Question 12

an accounting adjustment used to track and record…

• the receipt of money before revenue has been earned
• the payment of expenses before the expense has been incurred

Answer 12

deferral

Question 13

expenses that are paid in one accounting period even though the expense (i.e. the activity) will not be incurred until a later accounting period

Answer 13

deferred expense

Question 14

prepaid insurance is an ____ account

Answer 14

asset

Question 15

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

Answer 15

depreciation

Question 16

Whats the depreciation formula?

Answer 16

cost of an asset / estimated useful life of asset = annual depreciation

Question 17

states that assets should be recorded at their cost at the time the asset was purchased or created. the amount of that asset cannot be increased or decreased over the course of its useful life

Answer 17

cost principal

Question 18

contra asset account

Answer 18

accumulated depreciation

Question 19

an account linked with another account but it has the opposite normal balance, and on the financial statements, it is subtracted from the other accounts balance

Answer 19

contra account

Question 20

revenues in which the cash has been received from the customer but the goods have not yet been delivered or the service has not yet been provided

Answer 20

unearned revenues

Question 21

journal entries made at the end of the fiscal year to transfer the balance in the temporary accounts to the permanent accounts

Answer 21

closing entries

Question 22

includes revenues, expenses, and the withdraws accounts. they are closed at the end of every fiscal year to prevent their balances from being mixed with those of the next fiscal year

Answer 22

temporary accounts

Question 23

not closed at the end of the fiscal year. they maintain a cumulative balance that carries over from year to year. they are assets, liabilities, and capital

Answer 23

permanent accounts