Acct 351 Chapter 03 Flashcards Preview

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Flashcards in Acct 351 Chapter 03 Deck (50)
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1
Q

account

A

An individual accounting record of increases and decreases in a specific asset, liability, or shareholders’ equity item.

2
Q

accounting cycle

A

A series of steps followed by accountants in recording transactions and preparing financial statements

3
Q

accounting information system

A

The system of collecting and processing transaction data and communicating financial information to interested parties

4
Q

accrued expenses

A

Expenses incurred, but not yet paid or recorded at the statement date.

5
Q

accrued revenues

A

Revenues earned, but not yet received in cash or recorded at the statement date

6
Q

adjusted trial balance

A

A list of all open accounts in the ledger and their balances taken immediately after all adjustments have been posted

7
Q

adjusting entries

A

Journal entries made at the end of the accounting period to ensure that the revenue recognition and matching principles are followed

8
Q

balance sheet

A

A financial statement, otherwise known as the statement of financial position, that shows an enterprise’s financial condition at the end of a period

9
Q

book value

A

The difference between the cost of any depreciable asset and its related accumulated amortization.

10
Q

closing entries

A

The journal entries that close the temporary accounts in order to start a new financial reporting period. These amounts are posted to retained earnings.

11
Q

closing process

A

The procedure generally followed to reduce the balance of temporary accounts to zero in order to prepare the accounts for the next period’s transactions

12
Q

contra asset account

A

An account that is offset against an asset account on the balance sheet

13
Q

credit

A

The right side of a general ledger account.

14
Q

debit

A

The left side of a general ledger account.

15
Q

depreciation/amortization

A

The process of allocating the cost of tangible capital assets to the accounting periods benefiting their use. (Synonym: amortization)

16
Q

double-entry accounting system

A

The equality of debits and credits when recording transactions, which proves the accuracy of the recorded amounts

17
Q

event

A

A happening of consequence, which is generally the source of changes in asset, liability, and equity balances. An event may be internal or external.

18
Q

financial statements

A

The principal means through which financial information is communicated to those outside an enterprise. They provide a firm’s history, quantified in money terms.

19
Q

general journal

A

A chronological listing of transactions and other events expressed in terms of debits and credits to particular accounts

20
Q

general ledger

A

A collection of all assets, liability, shareholders’ equity, revenue, and expense accounts and their respective balances

21
Q

income statement

A

A method to account for contributions of assets that requires the amount received to be deferred and recognized over the period that the related assets are employed.

22
Q

journal

A

The book of original entry where transactions and selected other events are initially recorded.

23
Q

periodic inventory system

A

The inventory recording system where a Purchases account is used and the Inventory account is unchanged during the period. At the end of the accounting period, the Inventory account must be adjusted by closing out the beginning inventory amount and recording the ending inventory amount. Cost of goods sold is, therefore, determined by adding the beginning inventory to the net purchases and deducting ending inventory

24
Q

permanent accounts

A

All of the asset, liability and equity accounts that appear on the balance sheet. (Synonym: real accounts)

25
Q

perpetual inventory system

A

The inventory recording system where purchases and sales are recorded in the Inventory account as they occur

26
Q

post-closing trial balance

A

A trial balance taken immediately after closing entries have been posted

27
Q

posting

A

The process whereby items entered in a general journal must be transferred to the general ledger.

28
Q

prepaid expenses

A

Expenses paid in cash and recorded as assets before they are used or consumed

29
Q

reversing entries

A

A journal entry made at the beginning of the next accounting period that is the exact opposite of the related adjusting journal entry made in the previous period

30
Q

special journals

A

Journals that summarize transactions possessing a similar characteristic

31
Q

statement of cash flows

A

A financial statement that provides information about an entity’s cash receipts and cash payments during a period

32
Q

statement of comprehensive income

A

Reconciles net income to comprehensive income; reconciling items include unrealized gains and losses on certain financial instruments, and debits/credits from related party or other transactions not recognized in net income

33
Q

statement of retained earnings

A

The financial statement that reconciles the balance of the retained earnings account from the beginning to the end of the period.

34
Q

subsidiary ledger

A

Contains the details related to a given general ledger account

35
Q

T account

A

A convenient method of illustrating the effect of transactions on particular asset, liability, equity, revenue, and expense items

36
Q

temporary accounts

A

Revenue, expense, and dividend accounts, which, except for dividends, appear on the income statement. They are all periodically closed. (Synonym: nominal accounts)

37
Q

transaction

A

An external event involving a transfer or exchange between two or more entities or parties.

38
Q

trial balance

A

A list of all open accounts in the ledger and their balances

39
Q

unearned revenues

A

When a company receives consideration before the goods are delivered or the services are rendered

40
Q

useful life

A

The term of service that an asset is expected to provide

41
Q

work sheet

A

A columnar sheet of paper (or computer spreadsheet) used to adjust the account balance and prepare the financial statements

42
Q

Understand basic accounting terminology

A

It is important to understand the following terms: (1) event, (2) transaction, (3) account, (4) permanent and temporary accounts, (5) ledger, (6) journal, (7) posting, (8) trial balance, (9) adjusting entries, (10) financial statements, (11) closing entries

43
Q

Explain double-entry rules

A

The left side of any account is the debit side; the right side is the credit side. All asset and expense accounts are increased on the left or debit side and decreased on the right or credit side. Conversely, all liability and revenue accounts are increased on the right or credit side and decreased on the left or debit side. Shareholders’ equity accounts, Common Shares, and Retained Earnings are increased on the credit side, whereas Dividends is increased on the debit side.

44
Q

Identify the steps in the accounting cycle.

A

The basic steps in the accounting cycle are (1) identification and measurement of transactions and other events, (2) journalizing, (3) posting, (4) the unadjusted trial balance, (5) adjustments, (6) the adjusted trial balance, (7) statement preparation, and (8) closing

45
Q

Record transactions in journals, post journal entries to ledger accounts, and prepare a trial balance

A

The simplest journal form is a chronological listing of transactions and events that are expressed as debits and credits to particular accounts. The items entered in a general journal must be transferred (posted) to the general ledger. An unadjusted trial balance should be prepared at the end of a specific period after the entries have been recorded in the journal and posted to the ledger.

46
Q

Explain the reasons for preparing adjusting entries

A

Adjustments achieve a proper matching of revenues and expenses, which is necessary in order to determine the correct net income for the current period and to achieve an accurate statement of the end-of-the-period balances in assets, liabilities, and owners’ equity accounts.

47
Q

Prepare closing entries

A

In the closing process, all of the revenue and expense account balances (income statement items) are transferred to a clearing account called Income Summary, which is used only at the end of the fiscal year. Revenues and expenses are matched in the Income Summary account. The net result of this matching, which represents the net income or net loss for the period, is then transferred to a shareholders’ equity account (retained earnings for a corporation and capital accounts for proprietorships and partnerships).

48
Q

Explain how inventory accounts are adjusted at year end

A

Under a perpetual inventory system, the balance in the Inventory account should represent the ending inventory amount. When the inventory records are maintained in a periodic inventory system, a Purchases account is used; the Inventory account is unchanged during the period. The Inventory account balance represents the beginning inventory amount throughout the period. At the end of the accounting period, the inventory account must be adjusted by closing out the beginning inventory amount and recording the ending inventory amount

49
Q

Prepare a 10-column work sheet and financial statements

A

The 10-column work sheet provides columns for the first trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. The work sheet does not replace the financial statements. Instead, it is the accountant’s informal device for accumulating and sorting the information that is needed for the financial statements

50
Q

Identify adjusting entries that may be reversed

A

Reversing entries are usually used for reversing two types of adjusting entries: accrued revenues and accrued expenses. Prepayments may also be reversed if the initial entry to record the transaction is made to an expense or revenue account.