Chapter 3 Financial Accounting Flashcards Preview

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Flashcards in Chapter 3 Financial Accounting Deck (56):
1

What are 3 common accrued expenses?

Salaries
Interest
Taxes

2

Unearned revenues

Customer pays in advance for good or service

3

What are 3 examples of non cash transactions?

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

4

Closing the Books

Done after financial statements are prepared

5

In a permeant account what happens in terms of period?

Ending balance of one period carries over to following period

6

How long do you have to pay off current liabilities?

Must be paid in the next 12 months

7

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

Set temporary accounts to zero
-Transfer balances to retained earnings account
-Journal activity in Statement of Retained Earnings

8

Revenue Principle

Revenue is recorded when earned

9

What are the 2 purposes of Adjusting Entries?

Measure Income
Update Balance Sheet

10

Depreciation of Plant Assets never involves what?

Cash

11

In a temporary account, balance represents what?

A period of time

12

What are 4 examples of cash transactions?

Collecting from customers
Paying for expense
Borrowing money
Issuing Stock

13

When is revenue recorded?

When it's earned

14

How should expenses be recorded?

Recorded in the time period in which they are incurred

15

Accumulated Depreciation Amount Definition

The sum of all depreciation from using an asset

16

Time Period Concept Definition

Makes sure accounting information is reported on regular intervals

17

What are 3 different ways that an expense can arise?

Cash Expense
Using up an asset
Creating a liability

18

Permeant account is associated with

Balance sheet

19

Book Value Definition

Cost minus accumulated depreciation

20

How is revenue recorded?

At the cash value of goods or services provided

21

Trial balance

End balance before adjustment process

22

What are examples of the time-period concept?

Quarterly
Annually

23

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

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

Permanent Accounts include what 3 types of accounts ?

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

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