Question 1

Accounting period

Accepted Answer

Length of time covered by financial statements; also called reporting period.

Question 2

Accrual basis accounting

Accepted Answer

Accounting system that recognizes revenues when earned and expenses when incurred; the basis for GAAP.

Question 3

accrued expenses

Accepted Answer

Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities.

Question 4

accrued revenues

Accepted Answer

Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenues.

Question 5

adjusted trail balance

Accepted Answer

List of accounts and balances prepared after period-end adjustments are recorded and posted.

Question 6

adjusting entry

Accepted Answer

Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account.

Question 7

annual financial statements

Accepted Answer

Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable.

Question 8

book value

Accepted Answer

Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.

Question 9

cash basis accounting

Accepted Answer

Accounting system that recognizes revenues when cash is received and records expenses when cash is paid.

Question 10

Contra account

Accepted Answer

Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance.

Question 11

Depreciation

Accepted Answer

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Question 12

Expense recognition (or matching) principle

Accepted Answer

aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses.

Question 13

Fiscal year

Accepted Answer

Consecutive 12-month (or 52-week) period chosen as the organization's annual accounting period.

Question 14

Interim financial statements

Accepted Answer

Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods.

Question 15

Natural business year

Accepted Answer

Twelve-month period that ends when a company's sales activities are at their lowest point.

Question 16

Plant assests

Accepted Answer

Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets.

Question 17

Prepaid expenses

Accepted Answer

Items paid for in advance of receiving their benefits; classified as assets.

Question 18

Profit margin

Accepted Answer

Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin

Question 19

Straight-line depreciation method

Accepted Answer

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Question 20

Time period assumption

Accepted Answer

Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years.

Question 21

Unadjusted trial balance

Accepted Answer

List of accounts and balances prepared before accounting adjustments are recorded and posted.

Question 22

Unearned revenues

Accepted Answer

Liability created when customers pay in advance for products or services; earned when the products or services are later delivered.

"Know" box contains:
Time elapsed:
Retries:

Accounting Ch.3

Accounting