Module 5 Study Guide

Question 1

cash basis of accounting

Answer 1

recognizes revenues when cash is received and recognizes expenses when cash is paid out.

Question 2

accrual basis of accounting

Answer 2

recognize revenues when the company makes a sale or performs a service, regardless of when the company receives the cash.

Question 3

Accounting periods

Answer 3

time periods are usually equal in length and may be one month, one quarter, or one year.

Question 4

accounting year

Answer 4

also called a fiscal year, is an accounting period of one year.

Question 5

calendar year

Answer 5

ends on December 31.

Question 6

matching principle

Answer 6

requires that expenses incurred in producing revenues be deducted from the revenues they generated during the accounting period.

Question 7

Adjusting entries

Answer 7

journal entries made at the end of an accounting period or at any time financial statements are to be prepared to bring about a proper matching of revenues and expenses.

Question 8

prepaid expense

Answer 8

an asset awaiting assignment to expense.

Question 9

prepaid insurance

Answer 9

advance payment of insurance is an asset because the company will receive insurance coverage in the future.

Question 10

depreciable asset

Answer 10

a manufactured asset such as a building, machine, vehicle, or piece of equipment that provides service to a business.

Question 11

Depreciation expense

Answer 11

the amount of asset cost assigned as an expense to a particular period.

Question 12

depreciation accounting

Answer 12

the process of recording depreciation expense.

Question 13

Asset cost

Answer 13

the amount that a company paid to purchase the depreciable asset.

Question 14

Estimated residual value

Answer 14

the estimated residual value (scrap value) is the amount that the company can probably sell the asset for at the end of its estimated useful life.

Question 15

Estimated useful life

Answer 15

the estimated useful life of an asset is the estimated time that a company can use the asset.

Question 16

Straight-line depreciation

Answer 16

assigns the same amount of depreciation expense to each accounting period over the life of the asset.

Question 17

accumulated depreciation account

Answer 17

a contra asset account that shows the total of all depreciation recorded on the asset from the date of acquisition up through the balance sheet date.

Question 18

contra asset account

Answer 18

a deduction from the asset to which it relates in the balance sheet.

Question 19

Accrued assets

Answer 19

assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period.

Question 20

accrued revenues

Answer 20

assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period.

Question 21

deferred items

Answer 21

Deferred items consist of adjusting entries involving data previously recorded in accounts.
Deferred items consist of two types of adjusting entries: asset/expense adjustments and
liability/revenue adjustments. Examples include prepaid rent, prepaid insurance, and supplies
on hand

Question 22

Accrued items

Answer 22

Accrued items consist of adjusting entries relating to activity on which no data have been
previously recorded in the accounts. Accrued items consist of two types of adjusting entries:
asset/revenue adjustments and liability/expense adjustments. Examples include salaries not yet
paid and services performed, but not yet billed.