Financial Accounting- Tools for Business Decision Making - Chapter 4 Exam Questions Answered
Correctly (Graded A+)
Accrual-Basis accounting - Answers Accounting basis in which companies record, in the periods in which
the events occur, transactions that change a company's financial statements, even if cash was not
exchanged.
Accrued expenses - Answers Expenses incurred but not yet paid in cash or recorded.
Accrued revenues - Answers Revenues for services performed but not yet received in cash or recorded.
Adjusted trial balance - Answers A list of accounts and their balances after all adjustments have been
made.
Adjusting entries - Answers Entries made at the end of an accounting period to ensure that the revenue
recognition and expense recognition principles are followed.
Book value - Answers The difference between the cost of a depreciable asset and its related
accumulated depreciation.
Cash-basis accounting - Answers Accounting basis in which a company records revenue only when it
receives cash and an expense only when it pays cash.
Closing entries - Answers Entries at the end of an accounting period to transfer the balances of
temporary accounts to a permanent stockholder's equity, Retained Earnings.
Contra asset account - Answers An account that is offset against an asset account on the balance sheet.
Depreciation - Answers The process of allocating the cost of an asset to expense over its useful life.
Earnings management - Answers The planned timing of revenues, expenses, gains, and losses to smooth
out bumps in net income.
Expense recognition principle (matching principle) - Answers The principle that matches expenses with
revenues in the period when the company makes efforts to generate those revenues.
Fiscal year - Answers An accounting period that is one year long.
Income summary - Answers A temporary account used in closing revenue and expense accounts.
Periodicity assumption - Answers An assumption that the economic life of a business can be divided into
artificial time periods.
Permanent accounts - Answers Balance sheet accounts whose balances are carried forward to the next
accounting period.
Post-closing trial balance - Answers A list of permanent accounts and their balances after a company has
journalized and posted closing entries.
Correctly (Graded A+)
Accrual-Basis accounting - Answers Accounting basis in which companies record, in the periods in which
the events occur, transactions that change a company's financial statements, even if cash was not
exchanged.
Accrued expenses - Answers Expenses incurred but not yet paid in cash or recorded.
Accrued revenues - Answers Revenues for services performed but not yet received in cash or recorded.
Adjusted trial balance - Answers A list of accounts and their balances after all adjustments have been
made.
Adjusting entries - Answers Entries made at the end of an accounting period to ensure that the revenue
recognition and expense recognition principles are followed.
Book value - Answers The difference between the cost of a depreciable asset and its related
accumulated depreciation.
Cash-basis accounting - Answers Accounting basis in which a company records revenue only when it
receives cash and an expense only when it pays cash.
Closing entries - Answers Entries at the end of an accounting period to transfer the balances of
temporary accounts to a permanent stockholder's equity, Retained Earnings.
Contra asset account - Answers An account that is offset against an asset account on the balance sheet.
Depreciation - Answers The process of allocating the cost of an asset to expense over its useful life.
Earnings management - Answers The planned timing of revenues, expenses, gains, and losses to smooth
out bumps in net income.
Expense recognition principle (matching principle) - Answers The principle that matches expenses with
revenues in the period when the company makes efforts to generate those revenues.
Fiscal year - Answers An accounting period that is one year long.
Income summary - Answers A temporary account used in closing revenue and expense accounts.
Periodicity assumption - Answers An assumption that the economic life of a business can be divided into
artificial time periods.
Permanent accounts - Answers Balance sheet accounts whose balances are carried forward to the next
accounting period.
Post-closing trial balance - Answers A list of permanent accounts and their balances after a company has
journalized and posted closing entries.
