Chapter 3

Question 1

Accounting method that records revenue only when cash is received and expenses only when cash is paid

Answer 1

Cash Basis Accounting

Question 2

Accounting method that records revenues when earned and expenses when incurred

Answer 2

Accrual Basis Accounting

Question 3

Assumes that a business’ activities can be sliced into small time segments and that financial statements can be prepared for specific periods

Answer 3

Time Period Concept

Question 4

An accounting year of any 12 consecutive months that do not necessarily coincide with the calender year

Answer 4

Fiscal Year

Question 5

Requires companies to record revenue when it has been earned and determines the amount of revenue to record

Answer 5

Revenue Recognition Principle

Question 6

Ensures that all expenses are recorded when they are incurred during the period and matches those expenses against the revenues of the period

Answer 6

Matching Principle

Question 7

Entry made at the end of the accounting period that is used to record revenues to the period which they are earned and expenses to the period they occur

Answer 7

Adjusting Entry

Question 8

Long-Lived, tangible asset used in the operation of a business

Answer 8

Plant Asset

Question 9

Examples of Plant Assets

Answer 9

Land, buildings, and equipment

Question 10

Process where businesses spread the allocation of a plant asset’s cost over its useful life

Answer 10

Depreciation

Question 11

Expected value of a depreciable asset at the end of its useful life

Answer 11

Residual Value

Question 12

Depreciation method hat allocates an equal amount of depreciation each year

Answer 12

Straight-Line Method

Question 13

Sum of all the depreciation expense recorded to date for a depreciable asset

Answer 13

Accumulated Depreciation

Question 14

Account that us paired with its related account in the chart of accounts and associated financial statement

Answer 14

Contra Account

Question 15

Depreciable asset’s cost minus accumulated depreciation

Answer 15

Book Value

Question 16

Liability created when a business collects cash from customers in advance of completing a service

Answer 16

Deferred Revenue

Question 17

Expense that the business has incurred but has not yet paid

Answer 17

Accrued Expense

Question 18

Revenue that has been earned but the cash has not yet been collected

Answer 18

Accrued Revenue

Question 19

List of all the accounts with their adjusted balance

Answer 19

Adjusted Trail Balance

Question 20

An internal document that helps summarize data for the preparation of financial statements

Answer 20

Worksheet