Accounting Chapter 6 Flashcards

Questions and Answers

What is the accrual basis of accounting?

Recording journal entries at the beginning of a fiscal period

Summarizing financial information at the end of a fiscal period

Reporting income when it is earned and expenses when incurred (correct)

Reporting income when cash is received and expenses when cash is paid

What are adjusting entries?

Journal entries recorded to update general ledger accounts at the end of a fiscal period.

What are adjustments in accounting?

Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period.

Define a balance sheet.

A financial statement that reports the value of a business's assets, liabilities, and owner's equity on a specific date. Signup and view all the answers

What is the cash basis of accounting?

Reporting income when cash is received and expenses when cash is paid. Signup and view all the answers

What is a fiscal period?

The length of time for which a business summarizes financial information and reports its financial performance. Signup and view all the answers

What constitutes a fiscal year?

A fiscal period consisting of 12 consecutive months. Signup and view all the answers

What does an income statement show?

A financial statement showing the revenue and expenses for a fiscal period. Signup and view all the answers

Define net income.

The difference between total revenue and total expenses when total revenue is greater. Signup and view all the answers

What is a net loss?

The difference between total revenue and total expenses when total expenses are greater. Signup and view all the answers

What is prepaid insurance?

Cash paid for an expense in one fiscal period that is not used until a later period. Signup and view all the answers

What is a trial balance?

A proof of the equality of debits and credits in a general ledger. Signup and view all the answers

Define a work sheet in accounting.

A columnar accounting form used to summarize the general ledger information needed to prepare financial statements. Signup and view all the answers

Study Notes

Accounting Principles and Statements

Accrual Basis of Accounting: Income is recognized when earned, and expenses are recognized when incurred, regardless of cash flow.
Cash Basis of Accounting: Income is recognized only when cash is received, and expenses are recognized when cash is paid, making it simpler but potentially misleading.

Adjustments and Entries

Adjusting Entries: Essential journal entries made at the end of a fiscal period to ensure accounts reflect the accurate financial activities throughout that period.
Adjustments: Changes on a worksheet that are necessary to update general ledger accounts at the end of a fiscal period to reflect the true financial state.

Financial Statements

Balance Sheet: A snapshot of a business's financial position at a specific date, outlining its assets, liabilities, and owner's equity.
Income Statement: A report detailing revenues and expenses over a specific fiscal period, providing insight into the operational performance.

Financial Outcomes

Net Income: Occurs when total revenue exceeds total expenses, indicating profitability.
Net Loss: Occurs when total expenses surpass total revenue, indicating a financial shortfall.

Insurance and Fiscal Terms

Prepaid Insurance: Refers to payments made for insurance coverage that will be recognized in a future fiscal period, affecting future accounting periods.
Fiscal Period: The duration in which a business compiles its financial reports, typically measuring performance over a designated timeframe.
Fiscal Year: A specific fiscal period comprising 12 consecutive months, often aligning with the calendar year but not always.

Verification and Reporting Tools

Trial Balance: A financial report that ensures debits and credits in the general ledger are equal, serving as a foundational check for accuracy before finalizing financial statements.
Work Sheet: A structured tool used to gather and reorganize a business's financial information, facilitating the preparation of accurate financial statements from the general ledger.

Description

Test your knowledge on key accounting terms with these flashcards from Chapter 6. Learn definitions and concepts like 'Accrual Basis of Accounting' and 'Adjusting Entries' to better understand foundational accounting principles.