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Accrual Accounting And Adjusting Process

1. Soru

What is the main difference between the cash basis accounting and the accrual basis accounting?

Cevap

Accounting is based on either the cash basis or the accrual basis. The main difference between these two is in the dictation of how the companies’ transactions are recorded. Revenues and expenses may be recorded when the cash related with them is received/paid or when they are earned/incurred.


2. Soru

What does cash basis accounting refer to?

Cevap

In cash basis accounting, companies record revenues when they receive the cash and they record expenses when the cash is paid.


3. Soru

What does accrual basis accounting refer to?

Cevap

In accrual basis accounting, companies record revenues when they perform services (rather than when they receive cash) and record expenses when they are incurred (rather than when paid).


4. Soru

What is the time period concept?

Cevap

The time-period concept (or alternatively periodicity concept) assumes that unlimited economic life of a company will be divided into artificial time periods and that financial statements can be prepared for specific periods such as a month, quarter, or year.


5. Soru

What are the accounting periods for financial reports?

Cevap

Accounting periods may be monthly, quarterly, semiannually or yearly.


6. Soru

What is fiscal year?

Cevap

The 12-month accounting period used for the annual financial statements is called as fiscal year.


7. Soru

What are the starting and ending dates for calender year?

Cevap

Calendar Year = January 1 to December 31.


8. Soru

What is interim period?

Cevap

If the accounting period is shorter than one year, then it is called as an interim period. Interim periods may be monthly or quarterly.


9. Soru

What is revenue?

Cevap

Revenue is the gross increase in owner’s equity from delivering goods or services to customers and clients.


10. Soru

What is expense?

Cevap

Expense is the cost of assets consumed or services used during the revenue earning process.


11. Soru

What does revenue recognition principle refer to?

Cevap

Revenue recognition principle dictates that revenue is recognized when it is earned not the cash is received.


12. Soru

What does deferred revenue refer to?

Cevap

In deferred revenue, revenue is recognized after the cash is received.


13. Soru

What does accrued revenue refer to?

Cevap

In accrued revenue, revenue is recognized before the cash is received.


14. Soru

What does matching Principle mean?

Cevap

Matching Principle (Expense recognition principle) means that you will record the
expenses at the same time with the revenues related with these expenses are recorded.


15. Soru

What does deferred expense mean?

Cevap

When an expense is recognized after the cash paid, then it is called as deferred expense (prepaid expense).


16. Soru

What does accrued expense mean?

Cevap

When an expense is recognized before the cash is paid, then it is called as accrued expense.


17. Soru

What does the adjusting process refer to?

Cevap

The process of analysing and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process.


18. Soru

What do we mean by adjusting entries?

Cevap

The journal entries that bring the accounts up to date at the end of the accounting period are called adjusting entries.


19. Soru

What are the two basic categories of adjusting entries?

Cevap

There are two basic categories of adjusting entries. These are deferrals and
accruals.


20. Soru

What does depreciable amount refer to?

Cevap

Depreciable amount is the cost of an asset, or other amount substituted for cost, less than its residual value.


21. Soru

What does depreciation mean?

Cevap

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.


22. Soru

What does useful life refer to?

Cevap

Useful life is the estimated lifespan of a plant asset.


23. Soru

Which method is used to calculate the depreciation expense?

Cevap

To calculate the depreciation expense, we will use straight-line depreciation method.


24. Soru

What does accumulated depreciation refer to?

Cevap

Accumulated Depreciation is a contra asset account and it will accumulate the
depreciation expense during the useful life of depreciable asset.


25. Soru

What does the book value represent?

Cevap

The book value represents the cost invested in the asset that the business has not yet expensed or unexpired, in other words, reminder usefulness of plant asset.


26. Soru

What is an adjusted trial balance?

Cevap

The company has journalized and posted all adjusting entries. Next, it prepares another trial balance from the ledger accounts. This is called an adjusted trial balance.


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