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Intermediate Accounting I :!: > Chapter 2 > Flashcards

Chapter 2 Flashcards

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1
Q

What are external events?

A

External events involve an exchange between the company and another entity.

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2
Q

What are internal events?

A

Internal events do not involve an exchange transaction but do affect the company’s financial position.

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3
Q

What is the accounting equation?

A

Assets = Liabilities - Owner’s Equity

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4
Q

What is a transaction?

A

Each even, or transaction, has a dual effect on the accounting equation.

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5
Q

What is owner’s equity?

A

AKA Shareholder’s equity, is classified by source as either paid-in capital or retained earnings.

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6
Q

What is a double-entry system?

A

The double-entry system is used to process transactions.

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7
Q

What is a general ledger?

A

A general ledger is a collection of storage areas, called accounts, used to keep track of increases and decreases in financial position elements.

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8
Q

What is a T-account?

A

In the double-entry system, debit means left side of an account and credit means right side of an account?

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9
Q

Asset increases are entered on the _________ side of accounts and decreases are entered on the __________ side.

A

Debit

Credit

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10
Q

Liability and equity account increases are __________ and decreases are __________.

A

Credits

Debits

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11
Q

What are permanent accounts?

A

Permanent accounts represent the basic financial position elements of the accounting equation.

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12
Q

What are temporary accounts?

A

Temporary accounts keep track of the changes in the retained earnings component of shareholder’s equity.

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13
Q

What are the steps of the accounting processing cycle during the accounting period?

A
  1. Obtain information about external transactions from source documents.
  2. Analyze the transaction.
  3. Record the transaction in a journal.
  4. Post from the journal to the general ledger accounts.
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14
Q

What are the steps of the accounting processing cycle at the end of the accounting period?

A
  1. Prepare an unadjusted trial balance
  2. Record adjusting entries and post to the general ledger accounts
  3. Prepare an adjusted trial balance
  4. Prepare financial statements
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15
Q

What are the steps of the accounting processing cycle at the end of the year?

A
  1. Close the temporary accounts to retained earnings

10. Prepare a post-closing trial balance.

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16
Q

A __________ is an example of a special journal used to record a repetitive type of transaction.

A

sales journal

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17
Q

How do we record the borrowing of cash and signing of a note payable?

A

Debit: Cash
Credit: Note payable

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18
Q

How do we record the issuance of common stock?

A

Debit: Cash
Credit: Common Stock

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19
Q

How do we record the borrowing of cash and the signing of notes payable?

A

Debit: Cash
Credit: Notes payable

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20
Q

How do we record the payment of one year’s rent in advance?

A

Debit: Prepaid rent
Credit: Cash

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21
Q

How to record the purchase of furniture and fixtures?

A

Debit: Furniture and fixtures
Credit: Cash

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22
Q

How to record the purchase of merchandise inventory?

A

Debit: Inventory
Credit: Accounts payable

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23
Q

How do we record the purchase of supplies?

A

Debit: Supplies
Credit: Cash

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24
Q

How do we record the month’s cash sales and the cost of those sales?

A

Debit: Cash
Credit: Sales revenue

Debit: COGS
Credit: Inventory

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25
How do we record a credit sales and the cost of that sale?
Debit: Accounts receivable Credit: Sales revenue Debit: COGS Credit: Inventory
26
How do we record the receipt of rent in advance?
Debit: Cash Credit: Unearned rent revenue (liability)
27
How do we record the payment of accounts payable?
Debit: Accounts payable Credit: Cash
28
How do we record the payment of salaries for the first half of the month?
Debit: Salaries Expense Credit: Cash
29
How do we record the receipt of cash on account?
Debit: Cash Credit: Accounts receivable
30
How do we record the payment of a cash dividend?
Debit: Retained earnings Credit: Cash
31
At any time, the total of all debit balances should __________ the total of all credit balances.
equal
32
What are prepayments?
Prepayments are transactions in which the cash flow precedes expense or revenue recognition.
33
What are prepaid expenses?
Prepaid expenses represent assets recorded when a cash disbursement creates benefits beyond the current reporting period.
34
What is the adjusting entry required for a prepaid expense?
Debit to an expense | Credit to an asset
35
How do we record the cost of supplies during the month of July?
Debit: Supplies expense Credit: Supplies
36
How do we record the cost of expired rent for the month of July?
Debit: Rent expense Credit: Prepaid rent
37
How do we record the depreciation of furniture and fixtures for the month of July?
Debit: Depreciation expense Credit: Accumulated depreciation - furniture and fixtures
38
What are unearned revenues?
Unearned revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service.
39
What is the adjusting entry required when unearned revenues are earned?
Debit to a liability | Credit to revenue
40
How do we record previously unearned rent revenue during July?
Debit: Unearned rent revenue Credit: Rent revenue
41
What are accruals?
Accruals involve transactions where the cash outflow or inflow takes place in a period subsequent to expense or revenue recognition.
42
What are accrued liabilities?
Accrued liabilities represent liabilities recorded when an expense has been incurred prior to cash payment.
43
What adjusting entry is required to record an accrued liability?
Debit to an expense | Credit to a liability
44
How do we record accrued salaries at the end of July?
Debit: Salaries expense Credit: Salaries payable
45
How do we record accrued interest expense for July on notes payable?
Debit: Interest expense Credit: Interest payable
46
What are accrued receivables?
Accrued receivables involve situations when the revenue is earned in a period prior to the cash receipt.
47
What is the adjusting entry required to record an accrued revenue?
Debit to an asset, a receivable | Credit to revenue
48
How do we record accrued interest revenue earned in August on note receivable?
Debit: Interest receivable Credit: Interest revenue
49
Accountants often must make estimates in order to:
comply with the accrual accounting model
50
What is an income statement?
The income statement is a change statement that summarizes the profit-generating transactions that caused shareholders' equity (retained earnings) to change during the period.
51
What is the purpose of the statement of comprehensive income?
The purpose is to report the changes in shareholder's equity during the period that were not a result of transactions with owners.
52
What is the balance sheet?
The balance sheet is a position statement that presents an organized list of assets, liabilities, and equity at a particular point in time.
53
Balance sheet items usually are classified (grouped) according to:
common characteristics such as current assets and current liabilities
54
What is the purpose of the statement of cash flows?
The purpose is to summarize the transactions that caused cash to change during the period.
55
The statement of cash flows classifies transactions affecting cash into 3 categories:
1. Operating activities: Inflows and outflows of cash related to transactions entering the determination of net income. 2. Investing activities: Involve the acquisition and sale of (1) long-term assets in the business and (2) non-operating investment assets. 3. Financing activities: Involve cash inflows and outflows from transactions with creditors and owners.
56
What is the statement of shareholder's equity?
The statement of shareholder's equity discloses the sources of changes in the permanent shareholder's equity accounts.
57
How do we record the closing of revenue accounts to income summary?
Debit: Sales revenue and Rent revenue Credit: Income summary
58
How do we record the closing of expense accounts to income summary?
Debit: Income summary Credit: COGS, Salaries expense, Supplies expense, Rent expense, Depreciation expense, Interest expense
59
How do we record the closing of income summary to retained earnings?
Debit: Income summary Credit: Retained earnings
60
Most companies must convert from an __________ basis to a __________ basis when preparing the statement of cash flows.
accrual | cash
61
For most external transactions, __________ journals are used to capture the dual effect of the transaction in debit/credit form.
special
62
All credit sales are recorded in the _________ journal?
sales
63
What is a subsidiary ledger?
contains a group of subsidiary accounts associated with particular general ledger control accounts
64
All cash receipts are recorded in the __________ journal.
cash receipts
65
What are economic events?
Economic events cause changes in the financial position of the company.
66
How do we calculate sales revenue?
Cash collected from customers + Increase in accounts receivable
67
How do we calculate cost of goods sold?
Cost paid for merchandise + Increase in accounts payable + Purchases during 20XX - Decrease in inventory
68
How do we calculate insurance or rent expense?
Cash paid + Prepaid insurance/rent during 20XX - Prepaid insurance/rent (Cash paid * X/12 months)
69
How do we calculate salaries expense?
Cash paid + Increase in salaries payable
70
How do we calculate interest expense?
Loan from a bank * Interest rate * X/12 months

Intermediate Accounting I :!: (6 decks)

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