3.9: Discussion Questions

1. Explain the sequence of financial transactions that occur continuously during an accounting time period. What is this sequence of activities called?
2. Do you have to wait until the operating cycle is complete before you can measure income using the accrual basis of accounting?
3. 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?
4. What is the impact of the going concern concept on accrual accounting?
5. Identify three different categories of expenses.
6. What are adjusting entries and why are they required?
7. Why are asset accounts like Prepaid Insurance adjusted? How are they adjusted?
8. 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?
9. What is a contra account and why is it used?
10. How are liability accounts like Unearned Repair Revenue adjusted?
11. Explain the term accruals. Give examples of items that accrue.
12. Why is an adjusted trial balance prepared?
13. How is the adjusted trial balance used to prepare financial statements?
14. List the eight steps in the accounting cycle.
15. Which steps in the accounting cycle occur continuously throughout the accounting period?
16. Which steps in the accounting cycle occur only at the end of the accounting period? Explain how they differ from the other steps.
17. Give examples of revenue, expense, asset, and liability adjustments.
18. In general, income statement accounts accumulate amounts for a time period not exceeding one year. Why is this done?
19. Identify which types of general ledger accounts are temporary and which are permanent.
20. What is the income summary account and what is its purpose?
21. What is a post-closing trial balance and why is it prepared?