Chapter 2 Discussion Q's Flashcards
Memorization
Why is the use of a transactions worksheet impractical in actual practice?
Transaction worksheets are impractical due to manual entry and error risks.
What is an ‘account’? How are debits and credits used to record transactions?
An ‘account’ tracks financial transactions. Debits increase assets/expenses; credits increase liabilities/equity/revenues.
Some tend to associate “good” and “bad” or “increase” and “decrease” with credits and debits. Is this a valid association? Explain.
Yes, it’s valid because debits generally signify increases/good, while credits signify decreases/bad.
The pattern of recording increases as debits and decreases as credits is common to asset and expense accounts. Provide an example.
Example: Buying inventory with cash increases “Inventory” (debit) and decreases “Cash” (credit).
The pattern of recording increases and credits and decreases as debits is common to liabilities, equity, and revenue accounts. Provide an example.
Example: Receiving payment increases “Cash” (debit) and “Service Revenue” (credit).
Summarise the rules for using debits and credits to record assets, expenses, liabilities, equity, and revenues.
Debit assets/expenses to increase; credit liabilities/equity/revenues to increase. Debit the opposite accounts to decrease them.
What is a Trial Balance? Why is it prepared?
Trial Balance lists accounts and balances to ensure debits = credits, for financial position.
How is a Trial Balance used to prepare financial statements?
Trial Balance transfers balances to statements, ensuring accuracy before preparing.
A General Journal is often called a book of original entry. Why?
General Journal is the first entry point for transactions, hence the ‘book of original entry’.
The positioning of a debit-credit entry in the General Journal is similar in some respects to instructions written in a computer program. Explain, using an example.
Entries in the General Journal resemble coding commands, specifying debits and credits.
What is a General Ledger? Why is it prepared?
General Ledger records all financial transactions, aiding detailed account activity tracking.
What is a Chart of Accounts? How are the accounts generally arranged and why?
Chart of Accounts lists accounts systematically by category for financial reporting.
List the steps in the accounting cycle.
Accounting cycle steps: Analyze, journalize, post to the ledger, unadjusted trial balance, adjusting entries, adjusted trial balance, financial statements, close temporary accounts, post-closing trial balance.
