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3.9: Discussion Questions
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- Explain the sequence of financial transactions that occur continuously during an accounting time period. What is this sequence of activities called?
- Do you have to wait until the operating cycle is complete before you can measure income using the accrual basis of accounting?
- What is the relationship between the matching concept and accrual accounting? Are revenues matched to expenses, or are expenses matched to revenues? Does it matter one way or the other?
- What is the impact of the going concern concept on accrual accounting?
- Identify three different categories of expenses.
- What are adjusting entries and why are they required?
- Why are asset accounts like Prepaid Insurance adjusted? How are they adjusted?
- How are plant and equipment asset accounts adjusted? Is the procedure similar to the adjustment of other asset and liability accounts at the end of an accounting period?
- What is a contra account and why is it used?
- How are liability accounts like Unearned Repair Revenue adjusted?
- Explain the term accruals. Give examples of items that accrue.
- Why is an adjusted trial balance prepared?
- How is the adjusted trial balance used to prepare financial statements?
- List the eight steps in the accounting cycle.
- Which steps in the accounting cycle occur continuously throughout the accounting period?
- Which steps in the accounting cycle occur only at the end of the accounting period? Explain how they differ from the other steps.
- Give examples of revenue, expense, asset, and liability adjustments.
- In general, income statement accounts accumulate amounts for a time period not exceeding one year. Why is this done?
- Identify which types of general ledger accounts are temporary and which are permanent.
- What is the income summary account and what is its purpose?
- What is a post-closing trial balance and why is it prepared?