Chapter 3 Terminology

Question 1

Annual financial statements

Answer 1

Reports covering a one-year period.

Question 2

Interim financial statements

Answer 2

Reports covering one, three, or six months of activity.

Question 3

The ___________ presumes that an organizations activity can be divided into specific time periods such as a month, a three-month quarter, a six-month interval or a year.

Answer 3

Time period assumption

Question 4

Fiscal year

Answer 4

Consists of any 12 consecutive months or 52 weeks

Question 5

Natural business year

Answer 5

This is used by companies that have seasonal variations in sales. It’s when sales are at their lowest level for the year.

Question 6

Accrual basis accounting

Answer 6

Records revenues when services and products are delivered and records expenses when incurred (matched with revenues).

Question 7

Cash basis accounting

Answer 7

Records revenues when cash is reached and records expenses when cash is paid.

Question 8

_____ requires that revenue be recorded when goods or services are priced to customers and at an amount expected to be received from customers.

Answer 8

Revenue recognition principle

Question 9

_______ requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.

Answer 9

Expense recognition (or matching) principle

Question 10

Adjusting entry

Answer 10

Made at the end of an accounting period and reflects a transaction or event not yet recorded.

Question 11

Prepaid expense

Answer 11

Or deferred expense; are assets paid for in advance of receiving their benefits.

Question 12

_______ are long-term tangible assets used to provide and sell products and services.

Answer 12

Plant assets.

Question 13

Depreciation

Answer 13

The allocation of the costs of these assets over their expected useful lives, but it does not necessarily measure decline in market value.

Question 14

Straight-line deprecation

Answer 14

Allocates equal amounts of the assets net cost to deprecation during its useful life.

Question 15

_____ is a separate contra account and has a normal credit balance.

Answer 15

Accumulated depreciation.

Question 16

Contra account

Answer 16

An account linked with another account, is has an opposite normal balance, and it is reported as a subtraction from that other accounts balance.

Question 17

Unearned revenue

Answer 17

cash rechecked in advance of providing products and services.

Question 18

Costs that are incurred in a period that are both unpaid and unrecorded are called:

Answer 18

Accrued expenses

Question 19

Accrued revenues

Answer 19

Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

Question 20

Unadjusted trial balance

Answer 20

A list of accounts and balances before adjustments are recorded.

Question 21

Adjusted trial balance

Answer 21

List of accounts and balances after adjusting entries have been recorded and posted to the ledger.

Question 22

The _______ occurs at the end of an accounting period AFTER financial statements are completed.

Answer 22

Closing process.

Question 23

Closing entries

Answer 23

Transferee the end of period balances in revenue, expense, and dividend accounts to the permanent retained earning accounts.

Question 24

A _________ is a list of permanent accounts and their balances after all closing entries.

Answer 24

post-closing trial balance

Question 25

The _______ is the steps in preparing financial statements.

Answer 25

Accounting cycle

Question 26

Unclassified balance sheet

Answer 26

Broadly groups accounts into assets, liabilities, and equity.

Question 27

Classified balance sheet

Answer 27

Organizes assets and liabilities into subgroups.

Question 28

The ___________ is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services.

Answer 28

operating cycle

Question 29

Current assets

Answer 29

Cash and other resources that are expected to be sold, collected, or used within one year or the companies operating cycle, whichever is longer.

Question 30

Long-term investments

Answer 30

Include notes receivable and investments in stocks and bonds when they are expected to be held for more than the longer of one year or the operating cycle.

Question 31

Intangible assets

Answer 31

Long term assets that benefit the business operations but lack physical form. (Patents, trademarks, copyrights.)

Question 32

Current liabilities

Answer 32

Liabilities due to be paid or settled within one year or the operating cycle, whichever is longer.

Question 33

Long term liabilities

Answer 33

Liabilities not due within one year or the operating cycle, whichever is longer.