Chapter 2

Question 1

Accounting Information System (defined)

Answer 1

Collects and processes transaction data and then disseminates the information in financial statemetns to interested parties.

Question 2

The 3 Principles of Accounting Information Systems

Answer 2

1. Cost-Effectiveness
2. Useful Output
3. Flexibility

Question 3

General Ledger accounting systems (defined)

Answer 3

Software programs that integrate the various accounting functions related to sales, purchases, receivables, payables, cash receipts and disbursements, and payroll.

Question 4

The Accounting Equation

Answer 4

Assets = Liabilities + Stockholders’ Equity

Question 5

The Accounting Cycle:

Answer 5

1. Analyze business transactions
2. Journalize the transactions of the period in appropriate journals
3. Post from the journals to the ledger(s)
4. Prepare an unadjusted trial balance
5. Prepare adjusting journal entries and post to the ledger(s)
6. Prepare a trial balance after adjusting (adjusted trial balance)
7. Prepare the financial statements from the adjusted trial balance
8. Prepare closing journal entries and post to the ledger(s)
9. Prepare a post-closing trial balance (Optional)

Question 6

External Transactions

Answer 6

Economic events between the company and an outside enterprise

Question 7

Internal Transactions

Answer 7

Economic events that occur entirely within one country

Question 8

Trial Balance

Answer 8

List of accounts and their balances at a given time (Usually end of month)

Question 9

Types of Adjusting Entries

Answer 9

Deferrals (Prepaid Expenses & Unearned Revenue)
Accruals (Accrued revenues & Accrued Expenses)

Question 10

Prepaid Expenses

Answer 10

Debits an asset account

Question 11

Unearned Revenues

Answer 11

Debits a Liability Account

Question 12

The Double-Entry System:

Answer 12

The dual effect of eaach transaction is recorded with a debit and a credit

Question 13

Adjusted Entry for Defferals

Answer 13

Prepaid Expenses = Debit Expense, Credit Assets
Unearned Revenue = Debit Liabilitiy, Credit Revenue

Question 14

Asset Accounts (Increase or Decrease, Debit/Credit)

Answer 14

Debit = Increase, Credit = Decrease

Question 15

Expense Accounts (Increase or Decrease, Debit/Credit)

Answer 15

Debit = Increase, Credit = Decrease

Question 16

Liability Accounts (Increase or Decrease, Debit/Credit)

Answer 16

Debit = Decrease, Credit = Increase

Question 17

Stockholders’ Equity Accounts (Increase or Decrease, Debit/Credit)

Answer 17

Debit = Decrease, Credit = Increase
(Flip Expenses & Dividends bc they subtract)

Question 18

Revenue Accounts (Increase or Decrease, Debit/Credit)

Answer 18

Debit = Decrease, Credit = Increase

Question 19

Adjusted Entries for Accruals

Answer 19

Accrued Revenues = Debit Asset, Credit Revenue
Accrued Expenses = Debit Expenses, Credit Liabilities

Question 20

Sequence of Preparing Financial Statements:

Answer 20

1. Prep Income statement from Rev/Expense accounts
2. Derive the retaining earnings statement from retained earnings/dividents
3. Balance Sheet
4. Statement of cash flows