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Test 2 study Guide
includes ch 1-3
| Question | Answer |
|---|---|
| ____ is the length of time covered by a set of periodic financial statements | Accounting period |
| The common time periods are ____ | Month, Quarter, Six-month interval (semiannual), Year (annual) |
| ___ is the approach to preparing financial statements based on recording revenues when products and services are delivered and recording expenses when incurred | Accrual basis accounting |
| The two accounting principles that are critical to the adjusting process used in accrual accounting are ____ and ____ | Revenue recognition and Expense recognition (matching) |
| ____ increases the comparability of financial statements from period to period | Accrual basis accounting |
| ____ assumes that an organization’s activities can be divided into specific time periods such as a month, a three-month quarter, a six-month interval, or a year for periodic reporting. Interim and annual financial statements can then be prepared. | Time period principle |
| ____ is any twelve consecutive months on which to base the annual financial reports. | Fiscal year |
| ___ are statements prepared for any period less than a fiscal year. | Interim financial statements |
| January 1 to December 31 is considered a ____ | Calendar year |
| Calendar year, Fiscal year, Interim financial statements, and Natural business year fall under the ____ | Annual reporting period |
| GAAP stands for | Generally accepted accounting principles |
| ___ are rules that specify acceptable accounting practices. | Generally accepted accounting principles (GAAP) |
| Accrual basis is consistent with ____ | GAAP |
| Revenues are recognized when cash is received and expenses are recognized when cash is paid. This is known as _____ | Cash basis accounting |
| ___ is the accounting principle that requires revenue to be recorded when goods or services are provided customers and at an amount expected to be received from customers | Revenue recognition principle: |
| ___ is the principle that requires expenses be reported in the same period as the revenues that were recognized as a result of those expenses | Expense recognition (Matching) principle |
| An ____ is recorded to bring an asset or liability account balance to its proper amount. | Adjusting entry |
| Main purpose is to recognize transactions and events that are not yet recorded | Adjusting entries |
| ___ Accomplish updating liability and asset accounts to their proper balances | Adjusting entries |
| ___ Accomplish assigning revenues to the periods in which they are earned | Adjusting entries |
| ___ Accomplish assigning expenses to the periods in which they are incurred | Adjusting entries |
| ___ Accomplish assuring that financial statements reflect the revenues earned and the expenses incurred | Adjusting entries |
| Accounts that require adjusting entries ____ | • Prepaid expenses • Depreciation expense • Accrued expenses • Unearned revenues • Accrued revenues |
| does NOT require an adjusting entry | Cash |
| At the end of one accounting period result in cash receipts in a future period | Accrued revenues |
| Reported in the financial statements as a liability on the balance sheet | Unearned revenue |
| The contra account that includes total depreciation expense for all prior periods for which an asset was used | Accumulated depreciation |
| The expense recorded from allocating the cost of equipment to the periods in which it is used | Depreciation expense |
| The difference between the cost of an asset and the accumulated depreciation for that asset | Book Value |
| ___ is not depreciated because it is considered to have an infinite useful life | Land |
| ___ is a trial balance prepared before any adjustments have been recorded | Unadjusted trial balance |
| Unadjusted trial balance is a trial balance prepared ____ any adjustments have been recorded | before |
| ___ is a trial balance prepared after adjustments have been recorded | Adjusted trial balance |
| Adjusted trial balance is a trial balance prepared ____ adjustments have been recorded | after |
| Order of financial statement preparation ____ | Income Statement, Statement of Retained Earnings, Balance Sheet |
| ___ is an annual reporting period consisting of any twelve consecutive months or 52 weeks | Fiscal year |
| ____ are journal entries that transfer the end-of-period balances in revenue accounts to a permanent equity account | Closing entries |
| ___ are necessary at the end of each period to ensure that temporary accounts begin each period with zero balances | Closing entries |
| Temporary accounts that are closed at the end of the period are ____ | • Revenues • Expenses • Dividends • Income Summary |
| Permanent accounts that are NOT close at the end of the period are ____ | • Assets • Liabilities • Common Stock • Retained Earnings |
| The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through preparing the post-closing trial balance is known as the ____ | Accounting cycle |
| the ____ organizes assets and liabilities into subgroups of current and long-term | Classified balance sheet |
| ____ is classified as a current asset | Accounts receivable |
| ____ is classified as a long-term asset (plant asset) | Equipment |
| ___ is the temporary account used only for the closing process that contains a credit for total revenues (and gains) and a debit for total expenses (and losses) | Income Summary |
| ___ is used to close the revenue and expense accounts | Income Summary |
| Closing the Income Summary account - If it has a Credit balance, you should ____income summary and _____ retained earnings | Dr. Income Summary Cr. Retained Earnings |
| Closing the Income Summary account - If it has a Debit balance, you should ____income summary and _____ retained earnings | Dr. Retained Earnings Cr. Income Summary |
| How do you find Net Income? | Net Income = Revenues - Expenses |
| Ending retained earnings = | Beginning Retained Earnings + Revenues - Expenses - Dividends |
| Straight-line depreciation expense = | (Asset Cost – Salvage Value) ÷ Useful life in years |
| A company paid for an insurance policy that lasts two years. Debit ____ and Credit ____ | Dr. Prepaid Insurance Cr. Cash |
| A company received cash in advance for services it will perform in the future Debit ____ and Credit ____ | Dr. Cash Cr. Unearned Revenue |
| Adjust the Supplies account to get to the balance at the end of the month (Note: you may be given the final balance or the change during the month) You should Debit ____ and Credit ____ | Dr. Supplies Expense (increase expense) Cr. Supplies (decrease asset) |
| Adjust Unearned Revenue for revenue earned. Debit ____ and Credit ____ | Dr. Unearned Revenue (decrease liability) Cr. Revenue (increase revenue) |
| Adjust Prepaid Insurance for time used. Debit ____ and Credit ____ | Dr. Insurance Expense (increase expense) Cr. Prepaid Insurance (decrease asset) |
| Record the unpaid salaries of employees for work provided. Debit ____ and Credit ____ | Dr. Salaries Expense (increase expense) Cr. Salaries Payable (increase liability) |
| When these employees get paid the entry is Debit ____ and Credit ____ | Dr. Salaries Payable (wipe out previous entry) Cr. Cash (decrease asset) |
| The adjusting entry for utilities incurred but not yet paid is Debit ____ and Credit ____ | Dr. Utilities Expense (increase expense) Cr. Accounts Payable (increase liability) |
| The entry to close the dividends account at the end of the year is Debit ____ and Credit ____ | Dr. Retained Earnings Cr. Dividends |
| ____ affect both income statement and balance sheet accounts | Adjusting entries |
| Accrual basis accounting includes ____ | Revenue recognition and Expense recognition (matching) |
| Adjusting entries affect _____ account(s) | income statement and balance sheet |
| Accounting Equation _____ | Assets = Liabilities + Equity |
| ____ is the rule that requires revenue to be recognized when goods or services are provided to customers, and at the amount expected to be received from the customer | Revenue recognition principle |
| Revenue recognition principle requires revenue to be recognized when _____ | goods or services are provided to customers, and at the amount expected to be received from the customer |
| ___ the accounting principle which requires that all goods and services purchased be recorded at actual cost | Measurement (Cost) principle |
| ___ Occurs when revenue exceed expenses | Net Income |
| Net Income is also called ___ | profit |
| _____ are resources owned or controlled by a business that are expected to yield future benefits | Assets |
| ___ are reported on the Balance Sheet | Assets |
| ____ are assets created by selling goods and services on credit (on account) | Accounts Receivable |
| _____ is the monetary value earned for selling goods or services to customers | Revenue |
| _____ represents increases in equity from a company's sales of products or services to customers | Revenue |
| _____ is reported on the Income Statement | Revenue |
| ____ is the financial statement providing information that helps users understand a company's financial status | Balance Sheet |
| The ______ lists the types and amounts of assets, liabilities, and equity as of a specific date | Balance Sheet |
| _____ is the financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year. | Income Statement |
| The ______ reports whether the business earned a profit (net income) or had a loss (net loss) | Income Statement |
| If a company uses cash to purchase supplies, the effect on the accounting equation would be ___ | • The Cash asset account decreases • The Supplies asset account increases • Since they are both assets, there is no effect on the accounting equation |
| If a company purchases equipment on credit, the effect on the accounting equation would be ____ | • The Equipment asset account increases • The Accounts Payable liability account increases |
| If a company paid off $X of its accounts payable in cash, the effect on the accounting equation would be _____ | • The Cash asset account decreases $X • The Accounts Payable liability account decreases $X |
| ____ is the difference between the total debits and total credits for an account including the beginning balance | Account balance |
| ____ is an accounting system that records the effect of each transaction in at least two accounts, with at least one debit and one credit | Double-entry accounting system |
| Debit is on the ___ side of a T-account | Left |
| Credit is on the ___ side of a T-account | Right |
| ____ are liabilities recorded when customers pay in advance for products or services | Unearned revenues |
| ____ are assets from prepayments of future expenses | Prepaid expenses |
| A company purchased equipment on credit so debit____ and credit ____ | • Debit Equipment • Credit Accounts Payable |
| A company collected cash after providing services to a client, so debit____ and credit ____ | • Debit Cash • Credit Services Revenue |
| What is the difference between Revenue recognition principle and Measurement (Cost) principle? | revenue recognition principle states that revenue should be recognized while measurement (cost) principle states that items should be recorded |
| Should an asset be recorded in the purchaser’s books at what it was listed for sale at or what it is valued at by an appraiser? | No |
Created by:
22gonzalez
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