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jeremy harmon > Chapter 3 Financial Accounting > Flashcards

Chapter 3 Financial Accounting Flashcards

1
Q

What are 3 common accrued expenses?

A

Salaries
Interest
Taxes

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2
Q

Unearned revenues

A

Customer pays in advance for good or service

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3
Q

What are 3 examples of non cash transactions?

A

Sales on account
Purchases on account
Using prepaid expenses, such as supplies

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4
Q

Closing the Books

A

Done after financial statements are prepared

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5
Q

In a permeant account what happens in terms of period?

A

Ending balance of one period carries over to following period

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6
Q

How long do you have to pay off current liabilities?

A

Must be paid in the next 12 months

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7
Q

When you close the books what 3 things do you do?

A

Set temporary accounts to zero

  • Transfer balances to retained earnings account
  • Journal activity in Statement of Retained Earnings
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8
Q

Revenue Principle

A

Revenue is recorded when earned

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9
Q

What are the 2 purposes of Adjusting Entries?

A

Measure Income

Update Balance Sheet

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10
Q

Depreciation of Plant Assets never involves what?

A

Cash

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11
Q

In a temporary account, balance represents what?

A

A period of time

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12
Q

What are 4 examples of cash transactions?

A

Collecting from customers
Paying for expense
Borrowing money
Issuing Stock

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13
Q

When is revenue recorded?

A

When it’s earned

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14
Q

How should expenses be recorded?

A

Recorded in the time period in which they are incurred

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15
Q

Accumulated Depreciation Amount Definition

A

The sum of all depreciation from using an asset

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16
Q

Time Period Concept Definition

A

Makes sure accounting information is reported on regular intervals

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17
Q

What are 3 different ways that an expense can arise?

A

Cash Expense
Using up an asset
Creating a liability

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18
Q

Permeant account is associated with

A

Balance sheet

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19
Q

Book Value Definition

A

Cost minus accumulated depreciation

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20
Q

How is revenue recorded?

A

At the cash value of goods or services provided

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21
Q

Trial balance

A

End balance before adjustment process

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22
Q

What are examples of the time-period concept?

A

Quarterly

Annually

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23
Q

What are 3 things a business has to be sure of before preparing financial statements?

A

All revenue that has been earned has been recorded

  • All expenses that have been incurred are matched to revenues
  • Asset and liability accounts are up to date
24
Q

Permanent Accounts include what 3 types of accounts ?

A

Assets
Liabilities
Equity Accounts

25
Q

How many months does a company report on consistently?

A

12

26
Q

Fiscal year

A

Not starting a reporting period on January 1st

27
Q

Deferral Definition

A

An adjustment for an item that the business paid or received cash for in advance

28
Q

Temporary Accounts are closed or not closed

A

Closed

29
Q

Cash-Basis Accounting Definition

A

Only cash transactions recorded

30
Q

How is a prepaid expense recorded?

A

Recorded when the asset is purchased

31
Q

Depreciation of Plant Assets

A

Allocation of plant assets cost over their useful lives

32
Q

What is an example of an expense when using up an asset?

A

Using supplies previously purchased

33
Q

Accumulated Depreciation

A

Account that shows the sum of depreciation expense of the plant asset

34
Q

What 3 things does accrual accounting do?

A
  • Records business transactions when they occur
  • Complies with GAAP
  • Presents accurate financial picture
35
Q

Balance Sheet Deficit Definition

A

When assets do not equal liabilities + owner’s equity

36
Q

What is an example of a cash expense?

A

Paying monthly rent

37
Q

What adjustment needs to be made for a prepaid expense?

A

Adjustment needed to record amount used

38
Q

What adjustment has to be done for unearned revenues?

A

To adjust the amount of revenue earned

39
Q

Temporary account is associated with

A

Income statement

40
Q

How are unearned revenues recorded?

A

Recorded as a liability when company receives payment

41
Q

Permanent Accounts are closed or not closed?

A

Not closed

42
Q

Each adjusting entry affects what 2 things?

A

1 Income statement account

1 balance sheet account

43
Q

What 3 things does Cash- Basis Accounting do?

A

Records transactions only when cash is received or paid

  • Only used by very small businesses
  • omits important information
44
Q

Contra asset has what 2 things?

A

Always has a companion account

Normal credit balance

45
Q

When is the trial balance prepared?

A

After adjustments are made and posted

46
Q

Liquidity

A

How quickly something can be turned into cash

47
Q

Accrued Expenses

A

Expenses incurred before cash is paid

48
Q

What do accrued expenses result in?

A

A Liability

49
Q

Temporary Accounts include what 3 types of accounts?

A

Revenue
Expenses
Dividends

50
Q

What’s you always close in closing entries (RED)

A

Revenues
Expenses
Dividends

51
Q

What is an example of an expense that can arise from creating a liability?

A

Receive a bill from a supplier

52
Q

In the recording process what are the 2 differences between accrual and cash basis accounting?

A

Accrual Accounting

  • when sale is made
  • when bill is received

Cash Basis Accounting

  • when customer pays for product or service
  • when bills are paid
53
Q

Accrual Accounting Definition

A

Cash and non-cash transactions recorded

54
Q

The Matching Principle Definition

A

Match expenses with the revenue earned

55
Q

Where do you always close your revenue, expenses and dividends?

A

Retained Earnings

56
Q

What 2 things does the revenue principle say?

A

When to record revenue in a journal entry

The amount of revenue to record

jeremy harmon (108 decks)

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