Accounting Chapter 3 Flashcards

Which of the following statements is incorrect?

The accounting principle that requires revenue to be recorded when earned is the:

Financial statements are typically prepared in what order?

Unearned revenue is reported in the financial statements as:

What do accrued revenues result in at the end of one accounting period?

Adjusting entries are made after the preparation of financial statements.

The accrual basis of accounting:

Adjusting entries result in a better matching of revenues and expenses for the period.

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

Adjusting entries affect both income statement and balance sheet accounts.

Incorrect Statement

Adjusting entries do not solely affect balance sheet accounts; they also impact income statement accounts.

Revenue Recognition Principle

Revenue must be recorded when it is earned, not necessarily when cash is received.

Order of Financial Statements

Financial statements are prepared in the following order: income statement, statement of retained earnings, and balance sheet.

Unearned Revenue

Unearned revenue is classified as a liability on the balance sheet, indicating an obligation to deliver goods or services.

Accrued Revenues

Accrued revenues represent amounts earned but not yet received in cash, leading to future cash receipts.

Timing of Adjusting Entries

Adjusting entries are made before the preparation of financial statements, not afterward.

Accrual Basis of Accounting

The accrual basis is preferred for external reporting due to its ability to provide more relevant information for business decision-making compared to cash basis.

Matching Revenues and Expenses

Adjusting entries enhance the matching of revenues and expenses within the accounting period, contributing to more accurate financial reporting.

Examples Requiring Adjusting Entries

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues all require adjustments during the accounting period.

Impact of Adjusting Entries

Adjusting entries impact both income statement accounts and balance sheet accounts, ensuring accurate financial representation.

Test your knowledge with these flashcards based on Chapter 3 of accounting principles. This quiz includes essential concepts such as adjusting entries, revenue recognition, and the order of financial statements. Perfect for students brushing up on their accounting skills!