Chapter 3- Adjusting the Accounts

Question 1

Revenue must be recorded during the period in which it is earned. When the services provided or the good is sold

Answer 1

Revenue recognition principle

Question 2

The assumption that the company will continue in operation for the for seeable future

Answer 2

Going concern assumption

Question 3

A list of accounts and their balances after the company has made all adjustments

Answer 3

Adjusted trial balance

Question 4

In accounting. That extends from January 1 to December 31

Answer 4

Calendar year

Question 5

Adjusting entries for either prepaid expenses or unearned revenues

Answer 5

Deferrals

Question 6

Recording revenues when Cash is received and recording expenses when Cash is paid regardless of when the event occurred. GAAP does not allow this type of accounting

Answer 6

Cash-basis Accounting

Question 7

In accounting principles that dictates that companies disclose circumstances and events that make a difference to financial statement users

Answer 7

Full disclosure principle

Question 8

Entries made at the end of an accounting. To ensure that companies follow the revenue recognition and expense recognition principles

Answer 8

Adjusting entries

Question 9

Future expenses paid in cash before they are used or consumed

Answer 9

Prepaid expenses

Question 10

Use of the same accounting principles on methods from year to year within a company

Answer 10

Consistency

Question 11

An assumption that accountants can divide the economic life of a business into artificial time periods

Answer 11

Time perriod assumption

Question 12

An account offset against an asset account on the balance sheet

Answer 12

Contra asset account

Question 13

In accounting period that is one year and land

Answer 13

Fiscal year

Question 14

Describes information that occurs when independent observers, using the same methods, obtain similar results

Answer 14

Verifiable

Question 15

The difference between the cost of the depreciable assets and it’s related accumulated depreciation

Answer 15

Book value

Question 16

Describes information that is available to decision-makers before it loses its capacity to influence decisions

Answer 16

Timely

Question 17

A company specific aspect of relevant. An item is material when it’s size makes it likely to influence the decision of an investor or creditor

Answer 17

Materiality

Question 18

Recording transactions in the period in which the events occur. Recording revenues when earned and expenses when incurred regardless of when Cash is received or paid. This is required by GAAP

Answer 18

Accrual-basis accounting

Question 19

Monthly or quarterly accounting time periods

Answer 19

Interim periods

Question 20

The process of allocating the cost of an asset to expense over its useful life

Answer 20

Depreciation

Question 21

A liability recorded for cash received before services are performed

Answer 21

Unearned revenues

Question 22

Ability to compare their accounting information of different companies because they use the same accounting principles

Answer 22

Comparability

Question 23

Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

Answer 23

Cost constraint

Question 24

Expenses incurred but not yet paid in cash or recorded at the statement date.Common examples include interest, taxes in salaries. An adjusting entry would include a debit to expense and a credit to liability

Answer 24

Accrued expenses

Question 25

Describes information that is presented in a clear and concise fashion so that users can interpret it and comprehend it’s meaning

Answer 25

Understandability

Question 26

Revenues earned but not yet recorded at the end of the period. And adjusting entry with debit a receivable and credit a revenue

Answer 26

Accrued revenues

Question 27

The length of service of a long lived asset

Answer 27

Useful life

Question 28

Expenses should be recorded during the period they were incurred in order to match the expenses with the revenues

Answer 28

Expense recognition principle

Question 29

Two types of adjusting entries

Answer 29

Accruals and deferrals

Question 29

When Cash is exchanged before revenues earned or expenses incurred. Prepaid expenses and unearned revenues

Answer 29

Deferrals

Question 30

When revenue is earned or expenses incurred before cash exchange. Accrued revenue and accrued expenses

Answer 30

Accruals

Question 31

Contra asset account which offsets the fixed asset account it’s depreciating. It’s balance represents the total cumulative depreciation recorded since the asset was acquired. This is an asset account with a normal credit balance, meaning it increases with a credit and decreases with a debit

Answer 31

Accumulated depreciation