Chapter 4

Question 1

How many steps in accounting cycle?

Answer 1

9

Question 2

Transaction definition

Answer 2

Economic event that involves a change in an asset, liability, or equity account that is recorded.

Question 3

Accounting Equation definition

Answer 3

Assets=Liabilities+Equity

Question 4

Normal Balance definition

Answer 4

The expected balance in an account (side that increases the account/DExALEqR)

Question 5

Journalizing a transaction enters it into what ledger?

Answer 5

General Ledger

Question 6

Trial Balance definition

Answer 6

A listing of accounts and their ending debit or credit balances at a point in time

Question 7

Trial Balance is a _____ check?

Answer 7

Equality Check

Question 8

Unadjusted Trial Balance definition

Answer 8

Initial listing of all unadjusted accounts and their debit or credit balances

Question 9

Adjusting Journal Entries definition

Answer 9

Entries made to ensure that all revenues and expenses are recognized in the periods they were earned or incurred

Question 10

Adjusted Trial Balance definition

Answer 10

Listing of all accounts and their balances after adjustments

Question 11

Accrual Basis definition

Answer 11

Companies recognize revenues when earned and expenses when incurred regardless of when cash is received or paid

Question 12

Adjusted journal entries are needed at the end of each what?

Answer 12

Reporting Period

Question 13

Deferrals Definition

Answer 13

When a company receives or pays cash before officially recognizing the revenue or expense

Question 14

Deferred Expense definition

Answer 14

When a company makes a cash payment before incurring an expense (prepaid expenses)

Question 15

Depreciation and Amortization are what type of expense?

Answer 15

Deferred Expense

Question 16

Depreciation definition

Answer 16

The allocation of the cost of a long-term operating asset to expense over the assets expected lifetime

Question 17

Amortization definition

Answer 17

The allocation of the cost of an intangible asset to expense over the assets expected lifetime

Question 18

Contra-Asset Account definition

Answer 18

Asset account that has a normal credit balance

Question 19

Deferred Revenue definition

Answer 19

When a company receives cash before earning revenue and recognizing it (unearned revenue)

Question 20

Accrual definition

Answer 20

When the economic event happens before cash is received or paid

Question 21

Accrued Revenue definition

Answer 21

When a company has earned revenue but not received the cash for it

Question 22

Accrued Expense definition

Answer 22

When a company has incurred an expense but not paid it off in cash

Question 23

Order of Financial Statement Creation

Answer 23

Statement of Net Income, Statement of Stockholder’s Equity, Balance Sheet, Statement of Cash Flows

Question 24

Why Income Statement first?

Answer 24

Revenues and Expenses are a part of Retained Earnings

Question 25

Why Statement of Stockholders Equity second?

Answer 25

Stockholders Equity is part of the Balance Sheet

Question 26

Why Balance Sheet third?

Answer 26

Works best this way

Question 27

Why Statement of Cash Flows last?

Answer 27

It shows the increases and decreases in balance sheet and income statement accounts

Question 28

What do closing journal entries affect?

Answer 28

Revenue, Expenses, Retained Earnings, and Dividends

Question 29

Closing Definition

Answer 29

Process of bringing all temporary account to a zero balance

Question 30

What are permanent accounts?

Answer 30

Accounts that carry forward every period

Question 31

What type of account is Income Summary?

Answer 31

A holding account

Question 32

What type of accounts does the Post-Closing Trial Balance contain?

Answer 32

Permanent ones only

Question 33

Are reversing entries required?

Answer 33

No

Question 34

What do Reversing Entries do?

Answer 34

They reverse the effects of the adjusting journal entries from the previous period and simplify the recording of the next transactions