Acct 200 Exam 1

Front 1

Time Period Assumption

Back 1

the assumption that accountants divide the economic life of a business into artificial time periods

Front 2

interim periods

Back 2

monthly and quarterly time periods

Front 3

fiscal year

Back 3

an accounting time period that is one year in length

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accrual-basis accounting

Back 4

transactions that change a company's financial statements are recorded in the periods in which the events occur

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revenues are recognized when services are performed rather than when cash is received, and expenses are recognized when incurred rather than when paid

Back 5

accrual-basis accounting

Front 6

cash-basis accounting

Back 6

revenues are recorded when cash is received and expenses are recorded when cash is paid out

Does not match expenses with revenues

Front 7

Accounting process that is not in accordance with GAAP

Back 7

cash-basis accounting

Front 8

revenue recognition principle

Back 8

requires that companies recognize revenue in the accounting period in which they perform a service or sell a product

Front 9

expense recognition principle

Back 9

requires that companies match expenses with revenues in the period when the company makes efforts to generate those revenues (when the generation of revenue requires the expense)

aka matching principle

Front 10

adjusting entries

Back 10

entries in the accounting records that ensure that revenue recognition and expense recognition principles are followed

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Situations when the trial balance may not be up-to-date

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1. some events are not recorded because it wasn't efficient to do so at the time

2. some costs aren't recorded during the accounting period because the costs expire with passage of time rather than as a result of recurring daily transactions

3. some items may be unrecorded

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requirements of adjusting entries

Back 12

1. required every time a company prepares financial statements

2. every adjusting entry will include one income statement account and one balance sheet account

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Deferrals

Back 13

expenses or revenues that are recognized at a date later than the point when cash was exchanged

1. prepaid expenses

2. unearned revenues

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accruals

Back 14

1. accrued revenues

2. accrued expenses

Front 15

an adjusting entry for prepaid expenses results in:

Back 15

an increase (debit) to an expense account and a decrease (credit) to an asset account

(the original transaction most likely involved debiting one asset account, such as prepaid insurance or supplies, and crediting cash)

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useful life

Back 16

the period of service of an asset

Front 17

deprecation

Back 17

the process of allocating the cost of an asset to expense, during each period, over its useful life

this does NOT attempt to report the actual change in the value of the asset

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contra asset account

Back 18

an account that is offset against an asset account on the balance sheet.

Instead of crediting the asset account directly, a company credits the accumulated depreciation account related to the specific asset

normal balance = credit

Front 19

book value

Back 19

the difference between the cost of any depreciable asset and its related accummulated depreciation

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the adjusting entry for unearned revenues results in:

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a decrease (debit) to a liability account and an increase (credit) to a revenue account

(this occurs when a company performs a service that is has already received payment for)

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the adjusting entry for accrued revenues results in:

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an increase (debit) to an asset account and an increase (credit) to a revenue account

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an adjusting entry for accrued expenses results in:

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an increase (debit) to an expense account and an increase (credit) to a liability account

Front 23

formula for computing interest

Back 23

interest = face value of note * annual interest rate * time (in terms of one year)

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Alternative treatment

Back 24

used when expenses are paid in cash and recorded as expenses BEFORE they are used/consumed

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used when revenues are received in cash and recorded as revenues before services are preformed

Back 25

alternative treatment

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temporary accounts

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relate only to a given accounting period

include revenue, expense,and owner's drawings accounts

the company closes all these accounts at the end of the period

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Closing Entries

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formally recognize in the ledger the transfer of net income (or net loss) and owner's drawings to owner's capital

produce a zero balance in each temporary account

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income summary

Back 28

a temporary account in which the revenue and expense accounts are closed to

this account is closed to owner's capital

Front 29

closing entry steps

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1. debit each revenue account for its balance // credit Income Summary for total revenues

2. debit Income Summary for total expenses // credit each expense account for its balance

3. debit Income Summary for net income // credit Owner's Capital for amount of net income

4. debit Owner's Capital for the balance in the Owner's Drawings account // credit Owner's Drawings account for its balance

Front 30

Step 1

Back 30

Analyze business transactions

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Step 2

Back 31

Journalize the transactions

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Step 3

Back 32

Post to Ledger accounts

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Step 4

Back 33

Prepare a trial balance

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Step 5

Back 34

Journalize and post adjusting entries

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Step 6

Back 35

Prepare an adjusted trail balance

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Step 7

Back 36

prepare financial statements

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Step 8

Back 37

Journalize and post closing entries

Front 38

Step 9

Back 38

Prepare a post-closing trial balance