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Gr 11 Financial Accounting > Unit 6 > Flashcards

Unit 6 Flashcards

1
Q

Time Period Concept

A

A GAAP concept that provides that accounting will take place over specific time periods (e.g. fiscal periods, interim periods)

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2
Q

Fiscal period (a.k.a. financial year)

A

Accounting period that is 1 year long

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3
Q

Calendar year

A

A fiscal period from Jan 1 to Dec 31

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4
Q

Interim period

A

Accounting period that is less than 1 year long (weekly, monthly, etc.)

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5
Q

WHY must an accountant record adjusting entries?

A

1) bring accounts up to date
2) consider late transitions
3) make sure calculations are correct
4) ensure accounting principles and standards are followed (GAAP/IFRS)

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6
Q

Do you follow the guidelines of Accrual Basis Accounting or Cash Basis Accounting when preparing adjusting entries?

A

Accrual Basis Accounting

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7
Q

Difference between accrual basis accounting and cash basis accounting

A

Accrual basis accounting: Records revenue when the work is done & expenses when they occur

Cash basis accounting: Revenue is recorded when cash is received and an expense recorded when cash is paid

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8
Q

4 accounts that are NOT used in cash basis accounting:

A
  1. Accounts Receivable
  2. Prepaid Expenses
  3. Accounts Payable
  4. Unearned Revenue
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9
Q

Why is Accrual Basis Accounting more useful for decision-making than Cash Basis Accounting?

A

Reports profit more accurately

If Cash Basis Accounting is used instead, certain accounts would be overstated or understated

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10
Q

What 2 GAAP principles does Accrual Basis Accounting follow?

A
  1. The Revenue Recognition Principle
  2. The Matching Principle (Expense Recognition Principle)
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11
Q

When is an adjusting entry done?

A

At the end of a period of time (e.g. interim or fiscal period)

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12
Q

4 types of Adjusting Entries

A
  1. Supplies that have been used
  2. Prepaid assets that have expired
  3. Unearned revenues that have been earned
  4. Depreciation
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13
Q

Why must these transactions be journalized as an adjusting entry (not a regular journal entry)?

A
  1. Not efficient to record them daily (e.g. used up supplies)
  2. Cannot be recorded until they expire (insurance, rent)
  3. Info may not be available until after the accounting period
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14
Q

What is depreciation also referred to as?

A

Amortization

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15
Q

What is depreciation?

A

Reflects the loss in value of a fixed asset
In other words: A method of spreading the cost of a fixed asset over the useful life of that asset

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16
Q

What type of account is depreciation?

A

Expense

17
Q

Fixed assets are also referred to as __________

A

PPE

18
Q

What does PPE stand for?

A

Property, Plant & Equipment

19
Q

What are fixed assets?

A

Used by a company for the production and sale of goods/services to customers

20
Q

4 characteristics of fixed assets:

A
  1. PPE has a physical substance (tangible)
  2. PPE are used in the operation of a business
  3. PPE are not intended for sale to customers
  4. PPE is a long-lived asset (expected to last longer than an accounting period / many years)
21
Q

4 types of fixed assets:
Which asset does not depreciate?

A
  1. Land (does not depreciate → has an infinite useful life)
  2. Building
  3. Equipment
  4. Vehicles
22
Q

Cost of Fixed Asset can include…

A
  • Purchase price
  • Delivery cost
  • Setup cost
23
Q

Useful life

A

Period of time in which an asset is expected to be available for use

24
Q

How might an accountant estimate the asset’s useful life?

A
  • Refer to product information
  • Base estimate on company’s past experiences with the asset if used before
25
Q

Residual Value

A

The estimated amount that a company would get from disposing of the asset after its useful life

26
Q

Salvage Value

A

Amount of cash received for the sale of the asset

27
Q

Trade-In Value

A

Reduction in the purchase price of a new asset when it is purchased for cash + the old asset as a trade-in

28
Q

What is the residual value if the asset is thrown in the garbage?

A

Zero

29
Q

Why isn’t residual value depreciable?

A

This amount of money is recovered at the end of an asset’s useful life when sold / traded in

30
Q

Formula for depreciable amount

A

Depreciable amount = cost of asset - residual value

e.g. Equipment cost $10,000 and has a residual value of $1,000. The depreciable amount is $9,000. It is
not $10,000, as the company will get back $1,000 of cash if it is sold/traded-in.

31
Q

2 methods for calculating depreciation

A
  1. Straight-Line Method
  2. Declining-Balance Method
32
Q

2 accounts used to record adjusting entries for depreciation

A
  1. Depreciation expense
  2. Accumulated depreciation
33
Q

What is accumulated depreciation?

A

A contra-asset account that reduces the value of a related fixed asset account
Normal balance: CREDIT

34
Q

Formula for annual depreciation expense:

A

Annual depreciation expense = depreciable amount ÷ useful life (in years)

35
Q

Book value
(a.k.a. Carrying amount, carrying value, net book value)

A

Value of the asset that remains to be depreciated

36
Q

T or F: The book value is reported on the balance sheet

A

True

37
Q

What is an adjusted trial balance?

A

List of accounts and their balances after all adjustments have been posted to the Ledger.

38
Q

When is the adjusted trial balance prepared?

A

End of an accounting period

Gr 11 Financial Accounting (7 decks)

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