Chapter 3 Financial Accounting

Question 1

What are 3 common accrued expenses?

Answer 1

Salaries
Interest
Taxes

Question 2

Unearned revenues

Answer 2

Customer pays in advance for good or service

Question 3

What are 3 examples of non cash transactions?

Answer 3

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

Question 4

Closing the Books

Answer 4

Done after financial statements are prepared

Question 5

In a permeant account what happens in terms of period?

Answer 5

Ending balance of one period carries over to following period

Question 6

How long do you have to pay off current liabilities?

Answer 6

Must be paid in the next 12 months

Question 7

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

Answer 7

Set temporary accounts to zero

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

Question 8

Revenue Principle

Answer 8

Revenue is recorded when earned

Question 9

What are the 2 purposes of Adjusting Entries?

Answer 9

Measure Income

Update Balance Sheet

Question 10

Depreciation of Plant Assets never involves what?

Answer 10

Cash

Question 11

In a temporary account, balance represents what?

Answer 11

A period of time

Question 12

What are 4 examples of cash transactions?

Answer 12

Collecting from customers
Paying for expense
Borrowing money
Issuing Stock

Question 13

When is revenue recorded?

Answer 13

When it’s earned

Question 14

How should expenses be recorded?

Answer 14

Recorded in the time period in which they are incurred

Question 15

Accumulated Depreciation Amount Definition

Answer 15

The sum of all depreciation from using an asset

Question 16

Time Period Concept Definition

Answer 16

Makes sure accounting information is reported on regular intervals

Question 17

What are 3 different ways that an expense can arise?

Answer 17

Cash Expense
Using up an asset
Creating a liability

Question 18

Permeant account is associated with

Answer 18

Balance sheet

Question 19

Book Value Definition

Answer 19

Cost minus accumulated depreciation

Question 20

How is revenue recorded?

Answer 20

At the cash value of goods or services provided

Question 21

Trial balance

Answer 21

End balance before adjustment process

Question 22

What are examples of the time-period concept?

Answer 22

Quarterly

Annually

Question 23

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

Answer 23

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

Question 24

Permanent Accounts include what 3 types of accounts ?

Answer 24

Assets
Liabilities
Equity Accounts

Question 25

How many months does a company report on consistently?

Answer 25

12

Question 26

Fiscal year

Answer 26

Not starting a reporting period on January 1st

Question 27

Deferral Definition

Answer 27

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

Question 28

Temporary Accounts are closed or not closed

Answer 28

Closed

Question 29

Cash-Basis Accounting Definition

Answer 29

Only cash transactions recorded

Question 30

How is a prepaid expense recorded?

Answer 30

Recorded when the asset is purchased

Question 31

Depreciation of Plant Assets

Answer 31

Allocation of plant assets cost over their useful lives

Question 32

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

Answer 32

Using supplies previously purchased

Question 33

Accumulated Depreciation

Answer 33

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

Question 34

What 3 things does accrual accounting do?

Answer 34

- Records business transactions when they occur - Complies with GAAP - Presents accurate financial picture

Question 35

Balance Sheet Deficit Definition

Answer 35

When assets do not equal liabilities + owner's equity

Question 36

What is an example of a cash expense?

Answer 36

Paying monthly rent

Question 37

What adjustment needs to be made for a prepaid expense?

Answer 37

Adjustment needed to record amount used

Question 38

What adjustment has to be done for unearned revenues?

Answer 38

To adjust the amount of revenue earned

Question 39

Temporary account is associated with

Answer 39

Income statement

Question 40

How are unearned revenues recorded?

Answer 40

Recorded as a liability when company receives payment

Question 41

Permanent Accounts are closed or not closed?

Answer 41

Not closed

Question 42

Each adjusting entry affects what 2 things?

Answer 42

1 Income statement account | 1 balance sheet account

Question 43

What 3 things does Cash- Basis Accounting do?

Answer 43

Records transactions only when cash is received or paid - Only used by very small businesses - omits important information

Question 44

Contra asset has what 2 things?

Answer 44

Always has a companion account | Normal credit balance

Question 45

When is the trial balance prepared?

Answer 45

After adjustments are made and posted

Question 46

Liquidity

Answer 46

How quickly something can be turned into cash

Question 47

Accrued Expenses

Answer 47

Expenses incurred before cash is paid

Question 48

What do accrued expenses result in?

Answer 48

A Liability

Question 49

Temporary Accounts include what 3 types of accounts?

Answer 49

Revenue Expenses Dividends

Question 50

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

Answer 50

Revenues Expenses Dividends

Question 51

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

Answer 51

Receive a bill from a supplier

Question 52

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

Answer 52

Accrual Accounting - when sale is made - when bill is received Cash Basis Accounting - when customer pays for product or service - when bills are paid

Question 53

Accrual Accounting Definition

Answer 53

Cash and non-cash transactions recorded

Question 54

The Matching Principle Definition

Answer 54

Match expenses with the revenue earned

Question 55

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

Answer 55

Retained Earnings

Question 56

What 2 things does the revenue principle say?

Answer 56

When to record revenue in a journal entry | The amount of revenue to record