Financial Accounting Chapter 3 – Flashcards

Completing the accounting cycle requires ___,___,___ in order to prepare for the next accounting period

Under cash-basis accounting, revenue is recorded when

______ is an alternative to cash-basis accounting that is required by generally accepted accounting principles.

Under accrual accounting, transactions are recorded

Accrual accounting is superior to cash-basis because it _____, the principal activity of the company.

___ allows companies to artificially divide their operations into time period so they can satisfy users demands for information

____ determines when revenue is recorded and reported

under revenue recognition, revenue is recorded in the period in which both of the following conditions are met

notice that revenue is recorded when these two conditions are met, regardless of when

an ___ is recorded when it is incurred, regardless of when cash is paid

_____ requires that expenses be recorded and reported in the same period as the revenue that it helped to generate

____ are journal entries made at the end of an accounting period to record the completed portion of partially completed transactions.

Adjusting entries are necessary to apply the revenue recognition and matching principles and ensure that a company's financial statements include the proper amount for

All adjusting entries will affect at least

Note that ___ is never affected by adjustments

previously unrecorded revenues that have been earned but for which no cash has yet been received

previously unrecorded expenses that have been incurred but not yet paid

liabilities arising from the receipt of cash for which revenue has not yet been earned

assets arising from the payment of cash which has not been used or consumed by the end of the period

Companies often engage in revenue-producing activities but are not

If a company has earned revenue but not received the cash, these transactions are called

An example of an accrued revenue is

For accrued revenues, an adjustment is necessary to record the revenue and the

__ are previously unrecorded expenses that have been incurred but not yet paid in cash.

Many companies incur expenses in the current accounting period but do not

For accrued expenses, an adjustment is necessary to record the expense and the

Transactions for which a company has received cash but has not yet earned the revenue are called

Examples of deferred revenues include

The unearned revenue account delays, or defers, the recognition of revenue by

Companies often acquire goods and services before

These prepayments are recorded as assets called

the deferral of the expense is necessary because the initial cash payment did not result in an

Because property, plant, and equipment (long-lived assets) help to produce revenue over a number of years (instead of just one period), the matching principle requires companies to systematically assign or allocate the cost of these assets as expense to each period in which they are used. This process is called

The depreciation process requires an adjustment to recognize the expense incurred during the

The unused portion of a long-lived asset is reported on the

Accountants normally use a contra account to reduce the amount of

Contra accounts are accounts that have a balance that is ___ of the balance in the related account.

___ is the contra account for depreciable property, plant, and equipment assets.

Therefore, while an asset has a normal debit balance, a contra asset account has a normal

Contra asset account balance is deducted from the balance of the related asset account in the financial statement (balance sheet), and the resulting difference is known as the

After a company has journalized and posted all of the adjusting entries, it updates the

This trial balance is called an

Similar to the trial balance, the adjusted trial balance lists all of the active accounts and proves the

The balance sheet accounts- assets, liabilities, and stockholders' equity- are permanent accounts in that their balances are carried forward from

Revenues, expenses, and dividends are used to collect the activities of only one period, so they are considered

The final step of the accounting cycle, closing the accounts, is done to: Transfer the effects of revenues, expenses, and dividends (the temporary accounts) to the

The final step of the accounting cycle, closing the accounts, is done to: clear the revenue, expenses, and dividends (reduce their balances to zero) so they are ready to

Accountants often use an informal schedule called a __ to assist them in organizing and preparing the information necessary to perform the end-of-period steps in the accounting cycle—namely the preparation of adjusting entries, financial statements, and closing entries.

The worksheet is not a financial statement but simply an organizational tool that summarizes the information generated by the accounting system and enables the accountant to

While worksheets can be completed manually, most worksheets today are created in