Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Accrual-Basis accounting definition

A

Accounting basis in which companies record, in the periods in which the events occur, transactions that change the companies’ financial statements, even if cash was not exchanged

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Accrued expenses definition

A

Expenses incurred but not yet paid in cash or recorded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Accrued revenues definition

A

Revenues for services performed but not yet received in cash or recorded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Adjustments definition

A

Changes made to accounts at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Book value definition

A

The difference between the cost of a depreciable asset and its related accumulated depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Cash-basis accounting definition

A

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Contra asset account definition

A

An account that is offset against an asset account on the balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Depreciation definition

A

The process of allocating the cost of an asset to expense over its useful life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Expense recognition principle definition

A

The principle that companies recognize expenses in the period in which they make efforts (consume assets or incur liabilities) to generate revenues

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Fiscal year definition

A

An accounting period that is one-year long

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Periodicity assumption definition

A

As assumption that the economic life of a business can be divided into artificial time periods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Prepaid expenses (prepayments) definition

A

Expenses paid in cash before they are used or consumed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Revenue recognition principle definition

A

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Unearned revenue definition

A

Cash received and a liability recorded before services are performed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Useful life definition

A

The length of a service of a productive asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the 5 steps of the revenue recognition principle?

A
  1. Identify the contract with customers
  2. Identify the separate performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the separate performance obligation
  5. Recognize revenue when each performance obligation is satisfied
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the critical issue in expense recognition?

A

Determining when the expense makes it contribution to revenue.

*This may or may not be in the same period in which the expense is paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Name one Pro and 2 Cons of cash-basis accounting

A

Pro- Simplicity
Con- Produces misleading financial statements
Con- Not in accordance with GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why are adjustments necessary?

A

The first pulling of transaction data may not contain up to date/ complete data

  1. Some events are not recorded daily because it is inefficient
    • Use of supplies, employee wages
  2. Some costs are not recorded during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions
    • Rent, use of insurance
  3. Some items may not have been invoiced and are unrecorded
    • Utility bill
20
Q

When are adjustments required?

A

Every time a company prepares financial statements

21
Q

What are the two things every adjustment will include?

A
  1. One income statement account

2. One balance sheet account

22
Q

Name the two types of adjustments

A
  1. Accruals

2. Deferrals

23
Q

What are the 2 types of deferrals?

A
  1. Unearned revenue

2. Prepaid expenses

24
Q

What are the 2 types of accruals?

A
  1. Accrued revenues

2. Accrued expenses

25
Q

What does defer mean?

A

To postpone or delay

26
Q

Deferrals definition

A

Costs or revenues that are recognized at a date later than the point when cash was originally exchanged

27
Q

Examples of prepaid expenses

A
  1. Insurance
  2. Supplies
  3. Rent
  4. Advertising
  5. Purchase buildings and equipment
28
Q

Prepaid expenses before adjustments show:

After adjustments:

A

Assets overstated
Expenses understated

Increase to expenses
Decrease to assets (or increase contra-assets)

29
Q

Do adjustments have any effect on cash flow?

A

No

30
Q

Why does depreciation need to be adjusted?

A

The acquisition of a long-lived asset is essentially a long-term prepayment for the use of an asset

31
Q

Is depreciation an allocation or valuation concept?

A

Allocation

32
Q

Does depreciation record the actual change in value of the asset?

A

No

33
Q

What is accumulated depreciation considered?

A

Contra asset account

34
Q

What does accumulated depreciation track?

A

The total amount of depreciation expense taken over the life of the asset

35
Q

What is the opposite of a prepaid expense?

A

Unearned revenue

36
Q

Unearned revenue is listed on the balance sheet as a ______

A

Liability

37
Q

Unearned revenues before adjustments show:

After adjustments:

A

Liabilities overstated
Revenues understated

Increased revenues
Decreased liabilities

38
Q

Examples of unearned revenues

A
  1. Rent
  2. Magazine subscriptions
  3. Customer deposits for future services
39
Q

Adjustments to accruals will have what effect on the balance sheet and income statement?

A

Increase balance sheet account

Increase income statement account

40
Q

Examples of accrued revenues

A
  1. Commissions
  2. Fees
  3. Service revenues
41
Q

Accrued revenues before adjustments show:

After adjustments:

A

Assets understated
Revenues understated

Increased revenues
Increased assets

42
Q

Examples of accrued expenses

A
  1. Interest
  2. Taxes
  3. Utilities
  4. Salaries
43
Q

Accrued Interest is affected by which 3 factors?

A
  1. The face value of the note
  2. The interest rate
  3. The length of time the note is outstandinf
44
Q

How is the interest rate always expressed?

A

As an annual rate

45
Q

Accrued expenses before adjustments show:

After adjustments:

A

Expenses understated
Liabilities understated

Increased expenses
Increased liabilties

Accounting (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions