chapter 3

Question 1

what is the first step in the accounting cycle?

Answer 1

analyze transactions so we can determine the impact on the accounting equation.

Question 2

what is the accounting equation?

Answer 2

assets= liabilties+ shareholders equity (common shares and retained earnings) MUST ALWAYS BALANCE

Question 3

how do you calculate retained earnings?

Answer 3

revenues- expenses- dividends

Question 4

what are the two ways to analyze accounting transactions?

Answer 4

1. basic analysis (identify the accounts impacted by a given trasnaction)
2. equation analysis (demonstrate the effect each transaction has on financial statements using the accounting equation)

Question 5

what is the accounting information system?

Answer 5

The system of collecting and processing transaction data and communicating financial information to decision-makers.

Question 6

what is an accounting transaction?

Answer 6

An economic event that is recorded in the financial statements because it involves an exchange that affects assets, liabilities, and/or shareholders’ equity

Question 7

what is an account

Answer 7

An individual accounting record of increases and decreases in a specific asset, liability, and/or shareholders’ equity (common shares, retained earnings, revenue, expense, and dividends declared) item.

Question 8

what are the three parts to the t account aka the general ledger account?

Answer 8

title
left or debit side
right or credit side

Question 9

what are the benefits of t accounts?

Answer 9

reduces recording errors, helps in dteermiong the totals of each side of the account as well as the account balance

Question 10

what is the normal balance?

Answer 10

The side of an account used to increase the account

Question 11

assets are on which side of the t account?

Answer 11

debt for normal account, normally have more debits thna credits

Question 12

what side are liabilities on?

Answer 12

right side

Question 13

what side is SE on?

Answer 13

right side

Question 14

what side is revenue, dividends and expenses on?

Answer 14

revenue–> credit
dividends–> debit
expenses–> debit

Question 15

what are the three basic steps part of the recording process

Answer 15

1. Analyze each transaction in terms of its effect on accounts
2. Record the transaction information in the general journal
3. Transfer (or post) the information in the general journal to the appropriate accounts in the general ledger

Question 16

what are the three purposes of the general journal?

Answer 16

1. It discloses the complete effect of a transaction in one place, including a brief explanation of the transaction
2. It provides a chronological record of transactions
3. It helps to prevent and locate errors, because the debit and credit amounts for each entry can be quickly compared

Question 17

what is double entry accounting system?

Answer 17

A system that records the dual effect of each transaction in appropriate accounts

Question 18

what is a simple journal entry?

Answer 18

When only affects two accounts (one debit and one credit)-

Question 19

what is a compound entry?

Answer 19

Three or more accounts are in one journal entry

Question 20

what is the general ledger?

Answer 20

The book of accounts that contains a company’s asset, liability, and shareholders’ equity (common shares, retained earnings, revenue, expense, and dividends declared) accounts.

Question 21

how is the ledger arranged?

Answer 21

assets→< liabilities→ S.E (common shares, retained earnings and dividends, then revenue and expense)

Question 22

what are chart of accounts?

Answer 22

is a structured list of all the financial accounts or categories used by an organization to organize, record, and track its financial transactions.

Question 23

what is posting?

Answer 23

The procedure of transferring journal entries to the general ledger accounts.

Question 24

what type of order is posting done in?

Answer 24

chronological order

Question 25

how often should posting be done?

Answer 25

at least monthly to ensure thagt the general ledger is up to date

Question 26

what is a trial balance?

Answer 26

a list of general ledger accounts and their balances at a specific time, prepared at the end of accounting period

Question 27

for the trial balance, how are accounts listed?

Answer 27

n the order in which they appear in the general ledger, debits on left and credit on right

Question 28

what is the procedure for preparing a trail balance?

Answer 28

1. List the account titles and their balances. For assignment purposes, you will be expected to list the accounts in the trial balance in the same order as they would appear in the general ledger unless otherwise advised
2. Total the debit column and the credit column
3. Ensure that the debit and credit column totals are equal (agree)