Module 4

Question 1

Transactions that enter the accounting systems can be considered either _______ transactions or _____
transactions.

Answer 1

explicit; implicit

Question 2

________ transactions are those that are triggered by a specific event, often an exchange of resources
between two parties.

Answer 2

Explicit

Question 3

________ transactions do not have a specific trigger, but instead often involve some degree of judgment in determining the timing and amount of the journal entries.

Answer 3

Implicit

Question 4

Implicit transactions often lead to what are known as _________, which are journal entries made at the end
of a given accounting period (month, quarter, or year) to record necessary adjustments.

Answer 4

adjusting entries

Question 5

The goal of adjusting entries is generally to

conform to the __________ and ___________ principles.

Answer 5

revenue recognition; matching

Question 6

Adjusting journal entries typically relate to either ______ or ______.

Answer 6

accruals; deferrals

Question 7

_______ are transactions where cash changes hands after revenue or expense is recognized

Answer 7

Accruals

Question 8

_______ are transactions where cash changes hands

before revenue or expense is recorded.

Answer 8

Deferrals

Question 9

Accruals and deferrals always involve ________ or ________.

Answer 9

revenues; expenses

Question 10

When does a company want to ensure that all appropriate accrual and deferral entries have been made to accurately reflect the activities related to that period?

Answer 10

At the end of the period

Question 11

Every time a business makes a purchase, which is an _______ transaction, it must _______ when the
corresponding benefit from that purchase will come.

Answer 11

explicit; determine

Question 12

_________________, such as machinery and buildings,

will often help produce revenues for many years to come.

Answer 12

Long-lived physical assets

Question 13

We record adjusting journal entries to recognize ________ expense related to the assets over multiple periods, which is an ________ transaction.

Answer 13

depreciation; implicit

Question 14

____________ is calculated by dividing the gross book value by the estimated useful life of the asset.

Answer 14

Straight-line depreciation

Question 15

Any salvage value should be _________ from the gross book value.

Answer 15

subtracted

Question 16

Any disposal costs should be ________ to the

gross book value before calculating depreciation.

Answer 16

added

Question 17

The original cost of the asset less accumulated depreciation (a contra-asset account) is the _________ of the asset.

Answer 17

net book value

Question 18

We do not depreciate ____ because it is not “used up” by the business, and its value is typically not reduced or
consumed.

Answer 18

land

Question 19

What is an accelerated depreciation method, which causes more depreciation expense to be recognized in the early years and less in the later years?

Answer 19

double declining balance method

Question 20

The choice of depreciation method can have a large impact on _________ for the period.

Answer 20

net income

Question 21

Over the life of the asset, the _____ amount of depreciation will be calculated, but a company using double declining balance depreciation will report _____ net income in the early years, and higher in the later years, compared to a company using straight-line depreciation.

Answer 21

same; lower

Question 22

When an _____ is sold, the journal entry to record the sale eliminates _______ by writing off the asset and the accumulated depreciation on the asset and then recognizes any gain or loss based on whether the asset sold for higher or lower than its ________ at the time of the sale.

Answer 22

asset; net book value; net book value

Question 23

Non-physical long-lived assets such as ________ assets are treated in a similar manner, except the expense is called _______, rather than depreciation.

Answer 23

intangible; amortization

Question 24

In some cases for amortization, the journal entry will directly _____ the asset account, while in other cases, the journal entry will use a contra-asset account called accumulated amortization.

Answer 24

reduce

Question 25

_________ is another asset that needs to be analyzed at the end of each period.

Answer 25

Inventory

Question 26

What is the inventory system that records the expense for inventory at the time it is sold?

Answer 26

perpetual inventory system

Question 27

What is the inventory system that periodically records cost of goods sold by physically counting the actual inventory on hand and backing into the amount that must have been sold?

Answer 27

periodic inventory system

Question 28

The periodic inventory system is an example of a ___________.

Answer 28

Adjusting journal entry

Question 29

What are the several costing methods that inventory systems can use (4)?

Answer 29

1. First In First Out (FIFO)
2. Last In First Out (LIFO)
3. weighted average
4. specific identification

Question 30

Most businesses will have two types of costs: _____ Costs and _____ Costs.

Answer 30

Product; Period

Question 31

_____ costs are those that a business incurs to buy, manufacture, and deliver a good or service to a customer.

Answer 31

Product

Question 32

The product costs will include the raw materials and parts that are purchased from suppliers as well as ______ and supervision and _______ such as rent on the plant
building and depreciation of plant equipment.

Answer 32

direct labor; overhead costs

Question 33

______ costs are all of the other costs a company incurs while doing business, such as executive salaries or office rent.

Answer 33

Period

Question 34

A manufacturing business will track its _______ in three stages: raw materials, work in process (WIP), and finished goods.

Answer 34

inventory

Question 35

Another example of adjusting journal entries is _______ tax assets and _______ tax liabilities.

Answer 35

deferred; deferred

Question 36

Deferred tax assets and and deferred tax liabilities arise because temporary timing ________ can cause the calculation of taxable income to be deferent from how a business calculates its income before taxes for financial reporting purposes.

Answer 36

differences

Question 37

A _______________ arises when there is an amount of tax that is going to be due in the future, related to income
that is reported in the current period.

Answer 37

deferred tax liability

Question 38

A ______________ reflects a prepayment of some amount of tax on an amount that has not yet been reported as income on the income statement.

Answer 38

deferred tax asset

Question 39

Adjusting journal entries are part of the ___________.

Answer 39

closing process

Question 40

The closing process is really just an opportunity for a
company to evaluate its _______ and ensure that the proper accruals and other __________ have been made so that the financial statements will accurately reflect the results of all transactions that occurred during the period.

Answer 40

trial balance; adjusting entries