Chapter 4

Question 1

Revenue Recognition Principle

Answer 1

Recognize revenue in the accounting period in which the performance obligation is satisfied/ service is performed/ when goods delivered

Question 2

Expense Recognition Principle

Answer 2

Companies recognize expenses in the period in which they make efforts (consume assets or incur liabilities) to generate revenue

Question 3

Accrual-Basis Accounting

Answer 3

Transactions recorded in the periods in which the events occur - In accordance with GAAP

Question 4

Cash- Basis Accounting

Answer 4

Revenue recognized when cash is received- Not recognized by GAAP

Question 5

Types of Deferrals

Answer 5

Prepaid Expenses - Expenses paid in cash before they are used or consumed (Increase in expenses = Decrease in Assets)

Unearned Revenue - Cash received before services are performed (Decrease in Liability = Increase revenue)

Question 6

Types of Adjustment - Accruals

Answer 6

Accrued Revenue - Revenue for services performed but not yet received in cash or recorded

Accrued Expenses - Expenses incurred but not yet paid in cash or recorded

Question 7

Depreciation

Answer 7

Assets that provide service for many years - Recorded as Assets

Question 8

Accumulated Depreciation