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
How many months does a company report on consistently?
12
26
Fiscal year
Not starting a reporting period on January 1st
27
Deferral Definition
An adjustment for an item that the business paid or received cash for in advance
28
Temporary Accounts are closed or not closed
Closed
29
Cash-Basis Accounting Definition
Only cash transactions recorded
30
How is a prepaid expense recorded?
Recorded when the asset is purchased
31
Depreciation of Plant Assets
Allocation of plant assets cost over their useful lives
32
What is an example of an expense when using up an asset?
Using supplies previously purchased
33
Accumulated Depreciation
Account that shows the sum of depreciation expense of the plant asset
34
What 3 things does accrual accounting do?
- Records business transactions when they occur - Complies with GAAP - Presents accurate financial picture
35
Balance Sheet Deficit Definition
When assets do not equal liabilities + owner's equity
36
What is an example of a cash expense?
Paying monthly rent
37
What adjustment needs to be made for a prepaid expense?
Adjustment needed to record amount used
38
What adjustment has to be done for unearned revenues?
To adjust the amount of revenue earned
39
Temporary account is associated with
Income statement
40
How are unearned revenues recorded?
Recorded as a liability when company receives payment
41
Permanent Accounts are closed or not closed?
Not closed
42
Each adjusting entry affects what 2 things?
1 Income statement account | 1 balance sheet account
43
What 3 things does Cash- Basis Accounting do?
Records transactions only when cash is received or paid - Only used by very small businesses - omits important information
44
Contra asset has what 2 things?
Always has a companion account | Normal credit balance
45
When is the trial balance prepared?
After adjustments are made and posted
46
Liquidity
How quickly something can be turned into cash
47
Accrued Expenses
Expenses incurred before cash is paid
48
What do accrued expenses result in?
A Liability
49
Temporary Accounts include what 3 types of accounts?
Revenue Expenses Dividends
50
What's you always close in closing entries (RED)
Revenues Expenses Dividends
51
What is an example of an expense that can arise from creating a liability?
Receive a bill from a supplier
52
In the recording process what are the 2 differences between accrual and cash basis accounting?
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
Accrual Accounting Definition
Cash and non-cash transactions recorded
54
The Matching Principle Definition
Match expenses with the revenue earned
55
Where do you always close your revenue, expenses and dividends?
Retained Earnings
56
What 2 things does the revenue principle say?
When to record revenue in a journal entry | The amount of revenue to record