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accounting chapter 3 – Flashcards

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14 July 2022

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Cash received or paid is deffered

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until revenue is earned or expense is incurred

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revenue earned or expense incurred is accrued

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until cash is received or paid

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Deferred Expenses

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cash is paid for something that will be used up in a future accounting period

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Deferred expenses are initially recorded as

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assets

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Examples of deferred expenses

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prepaid rent/insurance, supplies, depreciation

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Deferred Revenues

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cash is received before revenue is earned

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Deferred revenues are intially recorded as

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liability

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Examples of deferred revenues

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unearned fees/revenue

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Accrued Revenue

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revenues that have been earned but not billed (and cash has not been received)

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Accrued Fees Earned/Service Revenue

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services have been performed and the earning process is complete, but the customer has not been billed called "sale on account"

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Sales Revenue Accrual

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goods have been delivered and the earning process is complete, but the customer hasn't been billed "sale on account

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Accrued Expenses

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Expenses that relate to the current accounting period but have not been paid for

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Accrued Wages/ Salaries Payable

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payroll date is at the end of the period amount owed to employees in the current period must be adjusted to record expense for the current period

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Working capital

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current assets - current liabilities

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current assets

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cash and other assets that are expected to be converted to cash, sold, or used up within 1 year/less through normal operations

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the larger the amount of working capital,

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the more likely a company will be able to pay off its current liabilities

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T/F: Receiving cash in advance of performing a service creates a liability for the company

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true

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T/F: The accrual basis recognizes liabilities at the time the business incurs the obligation to pay for the service or goods purchased

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true

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T/F: The accrual basis of accounting requires revenue to be recorded when the service is performed

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true

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T/F: Accrual accounting does NOT require that the accounting records be updated prior to preparing financial statements

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false

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T/F: The revenue recognition concept states that revenue should be recorded in the same period as the cash is received

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false

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T/F: Under the accrual basis of accounting, the accounting records are normally updated after the preparation of the financial statement

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false

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T/F: The matching concept requires expenses to be recorded in the same period that the related revenue is recorded

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true

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T/F: An adjusting entry would adjust revenue so that it is reported when earned and NOT when cash is received

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true

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T/F: An adjusting entry would adjust an expense account so that the expense is recorded when incurred

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true

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T/F: It is easy to objectively determine the physical decline in the ability of fixed assets to provide service

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false

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T/F: Accrued expenses are expenses that have been incurred and paid

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false

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T/F: Current assets are assets that are xpected to be converted to cash, sold or used up within 6 months

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false

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T/F: Physical assets of a long-term nature are referred to as fixed assets

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true

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T/F: Rights that are short-term in nature are called intagible assets

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false

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T/F: The fixed asset section of a balance sheet may also be labeled as property, plant and equipment

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true

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T/F: Land is an example of a current asset

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false

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T/F: Brand name recognition is an example of goodwill

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true

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T/F: Liabilities that will nOT be due for more than 1 year are called long term liabilities

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true

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T/F: Expenses on the income statement are assets used up or services consumed in the process of generating revenues

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true

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T/F: Under the accrual basis of accounting, net cash flows from operating activities on the statement of cash flows will normally be the same as net income

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false

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T/F: Under the cash basis of accounting, expenses are recorded when paid

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true

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T/F: Under accrual accounting, expenses are recorded when icurred regardless of when paid

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true

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T/F: Under the cash basis of accounting, no adjustments are necessary prior to the preparation of the financial statements

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true

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T/F: Under the cash basis of accounting, a business records only transactions as increases or decreases of its cash

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true

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T/F: To arrive at cash flows from operations, you have to convert income statement from an accrual to the cash basis of accounting

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true

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T/F: To determine cash payments from operating expenses for the cash flow using the direct method, depreciation expense is added to net income

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false

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Using accrual accounting, revenue is recorded and reported only

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when the services are rendered without regard to when cash is received

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Using accrual accounting, expenses are recorded and reported only

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when they are incurred, whether or not cash is paid

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Which of the following accounts would likely be included in a deferral adjusting entry?

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unearned revenue

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Unearned Revenue is what type of account?

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Liability

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Accrued revenues would appear on the balance sheet as

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assets

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Unearned rent, representing rent paid for the next 6 months occupancy, would be reported on the landlord's balance sheet as

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liability

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Fees receivable would appear on the balance sheet as an

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asset

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Depreciation Expense and Accumulated Depreciation are classified, respectively as

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expense and contra asset

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When cash is received in payment of an account receivable, which section of the Statement of Cash Flows is affected?

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Cash Flow from Operating Activities

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Which of the following is an example of an accrued expense?

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salary owed but not yet paid

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Accrued expenses are ordinarily reported on the balance sheet as

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liabilities

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When cash is paid to suppliers on account, which section of the Statement of Cash Flows is affected?

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Cash Flow from Operating Activities

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If prepaid insurance expires over time, this asset becomes an

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expense

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Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become ____ over time

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expenses

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Which of the following is an example of a deffered expense?

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prepaid advertising

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Deferred revenues (unearned revenues) are items intially recorded as liabilities, but expected to become

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revenues

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____ is/are created when a revenue or expense has NOT been recorded by the end of the accounting period

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accruals

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Which asset is NOT depreciated as it usually does NOT lose its ability to provide service?

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land

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Accumulated depreciation is ____ to get the carrying value

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subtracted from equipment

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Goodwill, patents, and copyrights are an example of what type of asset?

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intangible asset

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Current liabilities are usually due within

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one year or less

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Which of the following is NOT reported as revenue on the income statement?

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unearned revenue

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Cash and other assets that are expected to be converted to cash or sold or used up within one year or less through the normal operations of the business are called

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current assets

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Which transaction would be recorded in a cash basis system of accounting?

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sales of goods for cash

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Accrual basis of accounting recognizes

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revenues when earned and expenses when incurred

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On the statement of cash flows, the cash flows from operating activities section would include

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cash receipts from sales activities

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Which of the following should be deducted from net income in calculating cash flow from operating activities using the indirect method?

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a decrease in accounts payable

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Which of the following should be shown on a statement of cash flows under the financing activity section?

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the payment of cash to retire a long-term note

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Cash receipts from interest and dividends are classified as

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operating activities

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Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method as

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the cash flows from operating activities section

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Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

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a decrease in accounts receivable and dividends paid on common stock

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On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be

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deducted from net income in converting the net income reported on the income statement to cash flows from operating activities

accounting chapter 3 – Flashcards

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