ACCT 2110 MILLER AUBURN EXAM 2 VERIFIED
ACCURATE ANSWERS
Cash-basis Accounting - Answers -Revenue is recorded when cash is received
Expenses are recorded when cash is paid
Links the exchange of cash rather than the recognition of revenues and expenses
May not reflect all of the assets and liabilities so most companies do not use it
Accrual-basis Accounting - Answers -Transactions are recorded when they happen
Links income measurement to selling
Records both cash and noncash transactions
Time Period Assumption - Answers -Allows companies to artificially their operations
into time periods so they can satisfy users' demands for information
Revenue Recognition Principle - Answers -Determines when revenue is recorded and
reported
Two conditions
1. Revenue has been earned
2. The collection of cash is reasonably assured (regardless of when it is actually
received)
Expense Recognition (Matching) Principle - Answers -Expenses be recorded and
reported in the same period as the revenue that it helped generate
The key is only to report expenses and revenue that occur in the same period
Adjusting Entries - Answers -Journal entries made at the end of an accounting period to
record the completed portion of partially completed transactions
Necessary to apply the revenue recognition and matching principles
Accrued Revenues - Answers -Previously unrecorded revenues that have been earned
but for which no cash has yet been received
Accrued Expenses - Answers -Previously unrecorded expenses that have been
incurred but not yet paid for in cash
, Interest - Answers -Principal X Interest Rate X Time
Deferred (unearned) Revenues - Answers -Transactions for which a company has
received cash but has not yet earned the revenue
Recorded when goods are delivered or service is performed
Deferred (Prepaid) Expenses - Answers -Companies acquire goods and services
before they are used (prepayments)
Recorded when they are used to generate revenue
Supplies, prepaid rent, prepaid advertising, prepaid insurance, buildings, equipment
Depreciation - Answers -Adjustment to recognize the expense incurred during the
period and reduce the long lived asset
Contra assets - Answers -Accounts that have a balance that is opposite of the balance
in a related account (accumulated depreciation and buildings)
Permanent Accounts - Answers -Assets, liabilities, stockholders' equity
Balances are carried forward from the current accounting period to future accounting
periods
Temporary Accounts - Answers -Revenues, expenses, dividends
Used to collect the activities of only one period
Internal Control - Answers -Provide reasonable assurance that operations objectives,
reporting objectives, and compliance objectives are being met
Control Environment - Answers -Philosophy and operating style of management
Personnel policies and practices of the business
Overall integrity, attitude, awareness, and actions of everyone in the business
Strategic Risks - Answers -Possible threats to the organizations ability to achieve its
objectives and are external to the company
Business Process Risks - Answers -Internal processes of a business, specifically how
the company allocates it's resources to meet it's objectives
Risk assessment controls differ between different business processes
ACCURATE ANSWERS
Cash-basis Accounting - Answers -Revenue is recorded when cash is received
Expenses are recorded when cash is paid
Links the exchange of cash rather than the recognition of revenues and expenses
May not reflect all of the assets and liabilities so most companies do not use it
Accrual-basis Accounting - Answers -Transactions are recorded when they happen
Links income measurement to selling
Records both cash and noncash transactions
Time Period Assumption - Answers -Allows companies to artificially their operations
into time periods so they can satisfy users' demands for information
Revenue Recognition Principle - Answers -Determines when revenue is recorded and
reported
Two conditions
1. Revenue has been earned
2. The collection of cash is reasonably assured (regardless of when it is actually
received)
Expense Recognition (Matching) Principle - Answers -Expenses be recorded and
reported in the same period as the revenue that it helped generate
The key is only to report expenses and revenue that occur in the same period
Adjusting Entries - Answers -Journal entries made at the end of an accounting period to
record the completed portion of partially completed transactions
Necessary to apply the revenue recognition and matching principles
Accrued Revenues - Answers -Previously unrecorded revenues that have been earned
but for which no cash has yet been received
Accrued Expenses - Answers -Previously unrecorded expenses that have been
incurred but not yet paid for in cash
, Interest - Answers -Principal X Interest Rate X Time
Deferred (unearned) Revenues - Answers -Transactions for which a company has
received cash but has not yet earned the revenue
Recorded when goods are delivered or service is performed
Deferred (Prepaid) Expenses - Answers -Companies acquire goods and services
before they are used (prepayments)
Recorded when they are used to generate revenue
Supplies, prepaid rent, prepaid advertising, prepaid insurance, buildings, equipment
Depreciation - Answers -Adjustment to recognize the expense incurred during the
period and reduce the long lived asset
Contra assets - Answers -Accounts that have a balance that is opposite of the balance
in a related account (accumulated depreciation and buildings)
Permanent Accounts - Answers -Assets, liabilities, stockholders' equity
Balances are carried forward from the current accounting period to future accounting
periods
Temporary Accounts - Answers -Revenues, expenses, dividends
Used to collect the activities of only one period
Internal Control - Answers -Provide reasonable assurance that operations objectives,
reporting objectives, and compliance objectives are being met
Control Environment - Answers -Philosophy and operating style of management
Personnel policies and practices of the business
Overall integrity, attitude, awareness, and actions of everyone in the business
Strategic Risks - Answers -Possible threats to the organizations ability to achieve its
objectives and are external to the company
Business Process Risks - Answers -Internal processes of a business, specifically how
the company allocates it's resources to meet it's objectives
Risk assessment controls differ between different business processes
