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Accrual Accounting & Income

Accounting can be based on either the _____ basis or the _____ basis.

Accrual; cash

_____ _____ records the impact of a business transaction as it occurs.

Accrual accounting

_____-_____ _____ records only cash transactions - cash receipts and cash payments.

Cash-basis accounting

GAAP (Generally Accepted Accounting Principles) require _____ accounting.


True or false: Making the sale, not collecting the cash, increases your wealth.


The basic defect of cash-basis accounting is that the cash basis _____ important information.


_____ means going out of business.


The _____-_____ _____ concept ensures that accounting information is reported at regular intervals.

Time-period concept

The _____ year ends on a date other than December 31st.


The _____ _____ deals with two issues: when to record (make a journal entry); and the amount of revenue to record.

Revenue principle

The _____ _____ is the basis for recording expenses.

Matching principle

The _____ _____ includes two steps: identify all the expenses incurred during the accounting period; measure the expenses, and match expenses against the revenues earned.

Matching principle

To match expenses against revenues means to subtract _____ from _____ to compute net income or net loss.

Expenses; revenues

Trial balance means "_____".


Accounting adjustments fall into three basic categories: _____, _____, and _____.

Deferrals, depreciation, and accruals

A _____ is an adjustment for an item that the business paid or received cash in advance.


_____ allocates the cost of a plant asset to expense over the asset's useful life.


An _____ is the opposite of a deferral.


An _____ revenue is a revenue that the business has earned and will collect next year.


_____ _____ are long-lived tangible assets, such as land, buildings, furniture, and equipment.

Plant assets

The _____ _____ account shows the sum of all depreciation expense from using the asset.

Accumulated Depreciation

A _____ _____ has two distinguishing characteristics: it always has a companion account; its normal balance is opposite that of the companion account.

Contra account

The net amount of a plant asset (cost minus accumulated depreciation) is called that asset's _____ _____ (of a plant asset), or carrying amount.

Book value

The term _____ _____ refers to a liability that arises from an expense that has not yet been paid.

Accrued expense

A revenue that has been earned but not yet collected is called an _____ _____.

Accrued revenue

Some businesses collect cash from customers before earning the revenue. This creates a liability called _____ _____.

Unearned revenue

An unearned revenue is a _____, not a revenue.


Two purposes of the _____ _____ are to: measure income and update the balance sheet.

Adjusting process

_____ _____ _____ means to prepare the accounts for the next period's transactions.

Closing the books

The _____ _____ set the revenue, expense, and dividends balances back to zero at the end of the period.

Closing entries

Dividends, revenues, and expenses are _____ accounts.


Assets, liabilities, and stockholders' equity are _____ accounts.


_____ measures how quickly an item can be converted to cash.


____ is the most liquid asset.


A _____ _____ _____ separates current assets from long-term assets and current liabilities from long-term liabilities.

Classified balance sheet

The _____ _____ lists the assets at the top, followed by the liabilities and stockholders' equity below.

Report format

The _____ _____ lists the assets on the left and the liabilities and stockholders' equity on the right in the same way that a T-account appears, with assets (debits) on the left and liabilities and equity (credits) on the right.

Account format

A _____-_____ _____ _____ lists all the revenues together under a heading such as Revenues, or Revenues and Gains. The expenses are listed together in a single category titled Expenses, or Expenses and Losses.

Single-step income statement

A _____-_____ ____ _____ reports a number of subtotals to highlight important relationships between revenues and expenses.

Multi-step income statement

The _____ _____ divides total current assets by total current liabilities.

Current ratio

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