Chapter 2

Question 1

what does fasb 606 say about

Answer 1

Rev should be recognized in the period of when it was issued whether or not it has been collected

Question 2

what is accrual accounting

Answer 2

revenue and expenses are recognized before the cash is exchanged

Question 3

what is deferral accounting

Answer 3

revenue and expenses are not recognized untill cash is exchanged

Question 4

what type of transaction is an accounts receivable

Answer 4

asset exchange

Question 5

name the transaction

paying a salary

Answer 5

asset use: asset use is for paying expenses and liabilities

Question 6

name the transaction

collecting accounts receivable

Answer 6

asset exchange
one asset is being exchanged for another asset

Question 7

what are accrued expenses

Answer 7

expenses recognized before cash is paid

Question 8

what is adjusting entry

Answer 8

entry that updates balances of accounts to reflect correct amounts for accounting period

Question 9

whats an example of adjusting entry

Answer 9

someone performs a service in Dec but doesn’t get paid until Jan. Acurral accounting says the revenue was earned in Dec so adjusting entry is done at end of Dec to show earned Rev

Question 10

what does adjusting entries effect

Answer 10

Decreases Re

Question 11

what is salaries payable

Answer 11

salaries not yet paid to employees (a liability)

Question 12

Expenses

Answer 12

A decrease in assets or an increase in liability resulting from OA to generate revenue

Question 13

Statement of change

Answer 13

reports effects on SE from issuing C/S earning income and paying dividends

Question 14

what’s the primary goal of accrual accounting

Answer 14

match revenue and expenses

Question 15

what is a cost

Answer 15

an asset or an expenses

Question 16

is this an asset or an expenses

electricity is paid for the month after using it

Answer 16

Expense

Question 17

is this an asset or an expenses

Gravel is purchased in Jan yr 1for a project in June yr 1

Answer 17

Asset

Question 18

what is a prepaid item

Answer 18

A deferred expense

Question 19

What is the liability that comes with allowing customers to pay cash advance?

Answer 19

Unearned revenue

Question 20

Accounts receivable definition

Answer 20

money business is promised but not yet given by customer

Question 21

Accounts payable

Answer 21

Money company has promised but not yet given (liability)

Question 22

How does signing a contract effect financial statements

Answer 22

No effect because a service hasn’t been performed and money hasnt been paid

Question 23

What does it mean when a accounting event says ‘on account’

Answer 23

It will be paid for in the future and impact liabilities and assets.
they DO NOT show up in cash flow

Question 24

What does it mean to receive money on account

Answer 24

you’re earning rev before the cash transaction takes places so accounts receivable increases and retained earnings increase

Question 25

What appears on cash flow statement

Answer 25

OA: operating expenses, utilities
FA: stock, loan, dividend
IA: creditors, land, building

Question 26

What appears on income statement

Answer 26

any rev besides unearned rev
any exp

Question 27

What appears on statement of equity

Answer 27

Beginning/end C/S
beginning/end R/E
Dividends