Lecture 4

Question 1

the only way to know a company’s worth is to …?

Answer 1

liquidate

(sell all assets & pay off all liabilities)

Question 2

what acts as a company’s progress reports?

Answer 2

financial statements

Question 3

time-period concept = ?

Answer 3

accounting information is reported at regular intervals

Question 4

how does accrual accounting work?

Answer 4

records transactions as they’re earned/incurred

Question 5

how does cash accounting work?

Answer 5

records transactions as cash changes hands

Question 6

which is GAAP, accrual or cash accounting?

Answer 6

accrual accounting is GAAP

cash accounting is not

Question 7

what are the three types of adjusting journal entries?

Answer 7

deferrals, accruals, depreciation

Question 8

what is the purpose of adjusting entries?

Answer 8

to update some accounts for the passage of time

Question 9

deferrals = ?

Answer 9

an adjustment for the payment of an item where the payment precedes the provision

prepaid expenses, unearned revenue, supplies

Question 10

accruals = ?

Answer 10

an adjustment for the payment of an item where the provision precedes the payment

accrued revenue, accrued expenses, accumulated depreciation

Question 11

depreciation = ?

Answer 11

allocation of the cost of a long-term asset over its useful life

depreciation expense, accumulated depreciation

Question 12

prepaid expenses = ?

Answer 12

payment of an expense, typically rent or insurance, in advance

an asset

Question 13

what are two important dates for recording prepaid expenses?

Answer 13

expense payment date (debit prepaid expense, credit cash)

adjusting date (debit expense, credit prepaid expense)

Question 14

prepaid expenses = ?

Answer 14

what has already been paid for in the previous tax year

Question 15

accrued expenses = ?

Answer 15

what hasn’t been paid off in the previous tax year and has been carried over

Question 16

steps for recording prepaid expenses?

Answer 16

• take total payment & divide it by the number of months covered by the payment (e.g., rent covering 12 months)
• multiply the monthly expense by the number of months that have passed

prepaid expense balance = total payment - the final expense balance

Question 17

adjusting entries for supplies = ?

Answer 17

debit supplies, credit cash

debit supplies expense, credit supplies (once it’s been used up)

Question 18

unearned revenue = ?

Answer 18

cash received in advance of provision

liability

Question 19

how is unearned revenue recorded?

Answer 19

debit cash, credit unearned revenue

debit unearned revenue, credit revenue (once provision has been carried out)

Question 20

what are the two important dates for accrued expenses?

Answer 20

the period ending date

the payment date

Question 22

accrued expenses = ?

Answer 22

receive benefit & pay later

liability

Question 23

two important dates for accrued expenses = ?

Answer 23

the period ending date

the payment date

Question 24

accrued revenue = ?

Answer 24

revenue earned before cash received

asset

basically accounts receivable

Question 25

two important dates for accrued revenue = ?

Answer 25

the revenue recognition date

the cash receipt date