New Chapter 4:

Question 1

What is the revenue recognition principle?

Answer 1

Revenues are recognized in the accounting period in which the performance obligation is Satisfied.

Question 2

What is the expense recognition principle?

Answer 2

match expenses with revenues in the period

when the company makes efforts to generate those revenues.

Question 3

Describe the accrual basis of accounting?

Answer 3

Revenues are recognized when services are preformed, regardless if cash was or was not received.

Question 4

What is the difference between accruals and defferals?

Answer 4

Deferrals- cash comes first

Accruals- cash comes second

Question 5

What are the kinds of deferrals?

Answer 5

1. ) prepaid expense: expense paid for in cash Prior to the consumption of the asset.
2. ) Unearned Revenues: Cash received before services are preformed

Question 6

What are the kinds of accruals?

Answer 6

1. ) Accrued Revenue: Revenues for services performed but not yet received in cash.
2. ) Accrued Expense: expenses incurred but not yet paid for in cash.

Question 7

What kind of assets incur depreciation and what is depreciation?

Answer 7

Depreciation: the process of allocating the cost of an asset over its useful life.

Question 8

How do you calculate accrued interest?

Answer 8

Note amount x rate x 1/12

Question 9

Which are accounts are temporary and what does that mean?

Answer 9

Temporary: revenues, expenses, dividends

- they are not carried over to the next period and are closed in the closing statements

Question 10

Which are accounts are permanent and what does that mean?

Answer 10

• Assets, Liabilities, stock holders equity

These accounts are carried over into the next period.

Question 11

What does quality of earnings mean?

Answer 11

Indicates the level of full transport information that a company provides to users of its financial statements.