ACCT 2010 Exam 2 Test Questions and Verified Answers

Cash basis accounting accounting method that records revenue only when cash is received and expenses only when cash is paid Accrual basis accounting accounting method that records revenues when earned and expenses when incurred Time period concept assumes that a business's activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year Fiscal year an accounting year of any twelve consecutive months that may or may not coincide with the calendar year Revenue recognition principle requires companies to record revenue when it has been earned & determines the amount of revenue to record Matching principle guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period Adjusting entry an entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur Residual value the expected value of a depreciable asset at the end of its useful life Straight-line method a depreciation method that allocates an equal amount of depreciation each year (cost-residual value)/residual life Accumulated depreciation the sum of all the depreciation expense recorded to date for a depreciable asset Contra account an account that is paired with, and is listed immediately after, its related account in the chart of accounts and associated financial statement, and whose normal balance is the opposite of the normal balance of the related account Book value a depreciable asset's cost minus accumulated depreciation