Financial Accounting Exam 1 terms and
rules Questions And Answers
Owner's Equity Residual ownership of a company's assets (that is, after factoring out the
company's liabilities.)
Income Statement A report which measures a company's performance over a specified
period of time. Purpose is to "measure the performance of a company over a given period of
time."
Periodic versus Perpetual Approaches A perpetual approach involves updating an account
immediately every time it's balance changes (such as cash) whereas a periodic approach involves
letting accounts "slide" as it were during the periodic and adjusting them to their correct balances
only as of the end of the accounting period. Importantly, note that the only justification for using
a period approach is to save money.
Unadjusted Trial Balance A list of company's active accounts as of the end of the
accounting period based upon all transactions that were recorded and posted during the
accounting period (not intended as a complete list of accounts.)
, Financial Accounting Exam 1 terms and
rules Questions And Answers
Adjusting Entries Year-end journal entries made to correct accounts on the unadjusted
trial balance that are not yet where they should be as of the end of the accounting period (because
of the use of a periodic approach to account for the accounts.)
Unearned Revenue A liability resulting from a company having been paid in advance of
the performance of services.
Materiality Implies the significance or importance. The more material an item, the more
likely that precise accounting is required with more detail provided when the item is presented
on the financial statement.
Accrual Accounting The method chosen in financial accounting by which a company's
performance is measured by first recognizing revenue for the value of goods sold or services
performed followed by matching against the revenues of all the costs incurred in producing the
revenues.
Revenue The value of goods sold or services performed during a given time period.
Expense The cost of all goods sold or services performed during a given time period.
rules Questions And Answers
Owner's Equity Residual ownership of a company's assets (that is, after factoring out the
company's liabilities.)
Income Statement A report which measures a company's performance over a specified
period of time. Purpose is to "measure the performance of a company over a given period of
time."
Periodic versus Perpetual Approaches A perpetual approach involves updating an account
immediately every time it's balance changes (such as cash) whereas a periodic approach involves
letting accounts "slide" as it were during the periodic and adjusting them to their correct balances
only as of the end of the accounting period. Importantly, note that the only justification for using
a period approach is to save money.
Unadjusted Trial Balance A list of company's active accounts as of the end of the
accounting period based upon all transactions that were recorded and posted during the
accounting period (not intended as a complete list of accounts.)
, Financial Accounting Exam 1 terms and
rules Questions And Answers
Adjusting Entries Year-end journal entries made to correct accounts on the unadjusted
trial balance that are not yet where they should be as of the end of the accounting period (because
of the use of a periodic approach to account for the accounts.)
Unearned Revenue A liability resulting from a company having been paid in advance of
the performance of services.
Materiality Implies the significance or importance. The more material an item, the more
likely that precise accounting is required with more detail provided when the item is presented
on the financial statement.
Accrual Accounting The method chosen in financial accounting by which a company's
performance is measured by first recognizing revenue for the value of goods sold or services
performed followed by matching against the revenues of all the costs incurred in producing the
revenues.
Revenue The value of goods sold or services performed during a given time period.
Expense The cost of all goods sold or services performed during a given time period.
