Module 4 Flashcards
Transactions that enter the accounting systems can be considered either _______ transactions or _____
transactions.
explicit; implicit
________ transactions are those that are triggered by a specific event, often an exchange of resources
between two parties.
Explicit
________ 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.
Implicit
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.
adjusting entries
The goal of adjusting entries is generally to
conform to the __________ and ___________ principles.
revenue recognition; matching
Adjusting journal entries typically relate to either ______ or ______.
accruals; deferrals
_______ are transactions where cash changes hands after revenue or expense is recognized
Accruals
_______ are transactions where cash changes hands
before revenue or expense is recorded.
Deferrals
Accruals and deferrals always involve ________ or ________.
revenues; expenses
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?
At the end of the period
Every time a business makes a purchase, which is an _______ transaction, it must _______ when the
corresponding benefit from that purchase will come.
explicit; determine
_________________, such as machinery and buildings,
will often help produce revenues for many years to come.
Long-lived physical assets
We record adjusting journal entries to recognize ________ expense related to the assets over multiple periods, which is an ________ transaction.
depreciation; implicit
____________ is calculated by dividing the gross book value by the estimated useful life of the asset.
Straight-line depreciation
Any salvage value should be _________ from the gross book value.
subtracted
Any disposal costs should be ________ to the
gross book value before calculating depreciation.
added
The original cost of the asset less accumulated depreciation (a contra-asset account) is the _________ of the asset.
net book value
We do not depreciate ____ because it is not “used up” by the business, and its value is typically not reduced or
consumed.
land
What is an accelerated depreciation method, which causes more depreciation expense to be recognized in the early years and less in the later years?
double declining balance method
The choice of depreciation method can have a large impact on _________ for the period.
net income
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.
same; lower
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.
asset; net book value; net book value
Non-physical long-lived assets such as ________ assets are treated in a similar manner, except the expense is called _______, rather than depreciation.
intangible; amortization
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.
reduce
_________ is another asset that needs to be analyzed at the end of each period.
Inventory
What is the inventory system that records the expense for inventory at the time it is sold?
perpetual inventory system
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?
periodic inventory system
The periodic inventory system is an example of a ___________.
Adjusting journal entry
What are the several costing methods that inventory systems can use (4)?
- First In First Out (FIFO)
- Last In First Out (LIFO)
- weighted average
- specific identification
Most businesses will have two types of costs: _____ Costs and _____ Costs.
Product; Period
_____ costs are those that a business incurs to buy, manufacture, and deliver a good or service to a customer.
Product
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.
direct labor; overhead costs
______ costs are all of the other costs a company incurs while doing business, such as executive salaries or office rent.
Period
A manufacturing business will track its _______ in three stages: raw materials, work in process (WIP), and finished goods.
inventory
Another example of adjusting journal entries is _______ tax assets and _______ tax liabilities.
deferred; deferred
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.
differences
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.
deferred tax liability
A ______________ reflects a prepayment of some amount of tax on an amount that has not yet been reported as income on the income statement.
deferred tax asset
Adjusting journal entries are part of the ___________.
closing process
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.
trial balance; adjusting entries
