Ch 3

Question 1

Event

Answer 1

Happening of consequence

An event that is the source or cause of changes in assets, liabilities and equity.

May be internal or external

Question 2

Transaction

Answer 2

External event involving transfer or exchange between 2 or more entities

Question 3

Account

Answer 3

Shows effect of transactions and other events on specific element.
Separate account for each element

Question 4

Real accounts

Answer 4

Permanent

Assets
Liabilities
Equity

On balance sheet

Question 5

Nominal accounts

Answer 5

Temporary

Revenues
Expenses
Dividends

They all appear on income except for dividends

Question 6

Ledger

Answer 6

General ledger is a collection of all asset liability equity revenue and expense accounts

Question 7

Subsidiary ledgers

Answer 7

Contains details related to general ledger account

Question 8

Journal

Answer 8

Book of original entry

Initially records transactions and selected other events

General journal lists transactions chronologically

Journalizing is entering transaction data in journal

Question 9

Posting

Answer 9

Process of transferring essential facts and figures form book of original entry to ledger.

Question 10

Trial balance

Answer 10

List of all open accounts in ledger and balances.

Question 11

Adjusting engries

Answer 11

Made at the end of period to bring all accounts up to date on accrual basis so the financial statements can be made

Question 12

Financial statements t

Answer 12

Balance
– shows financial condition of enterprise at end of period

Income
–measures result of operations during period.

Statement of cash flows
–reports cash provided and used by operating investing and financing activities during period

Statement of retained earnings
–reconciles balance of etsinrd earnings account from beginning to end .

Question 13

Closing

Answer 13

Close all temp accounts

Question 14

Debits and credits do not mean

Answer 14

Increase or decrease but instead describe where a company makes entries in recording process

Question 15

Double entry accounting

Answer 15

Company records dual effect of each transaction in appropriate accounts.

Question 16

Accounting cycle

Answer 16

Oh 86

Question 17

A transaction effects how many accounts?

Answer 17

Two or more

Question 18

General journal entry consists of 4 parts

Answer 18

1. Accounts and amounts to be debited
2. ”. “ to be credited
3. Date
4. Explanation

Question 19

Posting involves

Answer 19

1. In ledger, appropriate columns of accounts devoted, enter date, journal page and debit amount
2. In reference column of journal write the account number to which the debit amount was posted
3. ” “ same as 1 but credit
4. ” “ same as 2 but credit

Question 20

The # in posting reference columns serves 2 purposes

Answer 20

1. Indicates ledger account # involved

2. Indicates completion of posting for particular item

Question 21

Trial balance lists the accounts in?

Answer 21

The order they appear on ledger .

The balance of 2 columns must agree

Question 22

What does the trial balance prove?

Answer 22

Equality of debits and credits after posting

Question 23

What are the procedures for preparing trial balance?

Answer 23

1. List the account titles and balances in appropriate debit or credit column.
2. Total debit and credit columns
3. Provide equality of columns.

Question 24

A trial balance does not prove what

Answer 24

That a company recorded all transactions or ledger is correct.

Question 25

Use of adjusting entries make what possible?

Answer 25

Report on balance sheet the appropriate assets liabilities and equity at statement date To report on income that proper revenues and expenses for period

Question 26

The trial balance, the first pulling together of transaction data may not contain ho to date and complete data because?

Answer 26

1. Some events not recorded daily 2. Some costs are not recorded during period because costs expire 3. Some items may un recorded

Question 27

Deferrals

Answer 27

Prepaid expenses --expenses paid in cash before used or consumed Unearned revenues --cash received before services are performed

Question 28

Accruals

Answer 28

Accrued revenues --revenues for services performed but not yet received in cash or recorded Accrued expenses --expenses incurred by not yet paid in cash.

Question 29

Depreciation

Answer 29

Process of allocating cost of an asset to expense over its useful life in a rational and systematic manner.

Question 30

Depreciation is a?

Answer 30

Estimate rather than factual measurement of expired costs.

Question 31

Contra asset account

Answer 31

Offsets an asset account on balance sheet.

Question 32

Accumulated depreciation normal balance is?

Answer 32

Credit

Question 33

Book value

Answer 33

Cost minus accumulated depreciation

Question 34

Why does asset book value generally differ from fair value?

Answer 34

Depreciation is an allocation concept not a valuation concept.

Question 35

Depreciation allocates

Answer 35

Assets cost to periods in which it is used.

Question 36

What is the purpose of adjusted trial balance

Answer 36

Prove that credits = debits after all adjustments

Question 37

Adjusted trial balance is the primary basis for

Answer 37

Preparation of financial statements

Question 38

Post closing trial balance

Answer 38

Trial balance after closing.

Question 39

Purpose of post closing trial balance?

Answer 39

Prove equality of permanent account balances that company carries forward into next accounting period.

Question 40

Post closing trial balance includes only

Answer 40

Permanent (real) balance sheet accounts

Question 41

Post closing trial balance provides evidence in

Answer 41

That company properly journalized and posted closing entries. It shows the accounting equation is in balance at the end of accounting period.

Question 42

Reversing entries

Answer 42

Is optional Can be made at beginning of accounting period. Exact opposite of adjusting journal entries made in previous periods