REVIEW OF THE ACCOUNTING PROCESS

Question 1

the world’s largest member-association
representing the accounting profession and with a history of serving the public interest since 1887

Answer 1

American Institute of Certified Public Accountants (AICPA)

Question 2

the art of recording, classifying, and summarizing in a significant manner in terms of money, transactions,
and events which are, in part least of financial character, and interpreting the results thereof

Answer 2

accounting

Question 3

is the process of systematically
maintaining a record of all business transactions.

Answer 3

Recording

Question 4

is the sorting or grouping of similar and interrelated transactions in their respective class.

Answer 4

Classifying

Question 5

is an information system that measures business activities, processes information into reports, and communicates the reports to the users

Answer 5

Accounting

Question 7

this has been called the language of
business

Answer 7

accounting

Question 8

The following are the steps in the accounting process:

Answer 8

a. Transactions are identified and documented
b. Transactions are analyzed and recorded in a journal
c. Entries are posted to the ledger
d. Preliminary trial balance is prepared
e. Adjusting entries are journalized and posted
f. Adjusted trial balance is prepared
g. Financial statements are prepared
h. Books are closed
i. Post-closing trial balance is prepared
j. Reversing entries are journalized and posted.

Question 9

are economic resources that are expected to benefit the business in the future. These are something the business owns that has a value which includes cash, merchandise inventory, furniture, land, etc

Answer 9

Assets

Question 10

are the debts payable to outsiders who are known as creditors. Examples include accounts
payable, notes payable, and salary payable.

Answer 10

Liabilities

Question 11

consists of the owner’s investments and other net assets from owner contributions, which increase equity.

Answer 11

Owner’s capital

Question 11

are outflows of cash and other assets to owners for personal use, which decreases equity.

Answer 11

Drawings

Question 11

are the gross increase in owner’s equity resulting from business activities entered into to earn income.
Examples include sales of products, consulting services provided, facilities rented to others, etc.

Answer 11

Revenues

Question 11

are the cost of assets consumed or services used in the process of earning revenue. These are the decreases in an owner’s equity that result from operating the business.
Examples include salaries and wages, use of supplies, advertising, utilities, and insurance fees.

Answer 11

Expenses

Question 12

The system of analyzing the effects of transactions and recording them in terms of debit and credit is known as the ________________

Answer 12

double-entry bookkeeping

Question 13

are journal entries at the end of the accounting period necessary to bring the balances of each temporary or nominal accounts to zero so that they will be ready to receive data for the next reporting period. These temporary accounts are revenues, expenses, and drawing accounts

Answer 13

Closing entries

Question 14

A_______________is prepared after preparing the adjusting and closing entries. This lists only the accounts found in the statement of financial position. These are called real accounts.

Answer 14

post-closing trial balance

Question 14

provides information on the cash receipts and payments for a specific period.
It reports:
(1) the cash effects of a company’s operations during a period,
(2) its investing activities,
(3) its financing activities,
(4) the net increase or decrease in cash during the
period
(5) the cash amount at the end of the period.

Answer 14

Statement of Cash Flows

Question 15

shows the financial position of a business on a certain date, usually the end of the month or year. For this reason, it is often called the statement of financial position

Answer 15

Statement of Financial Position (Balance Sheet)

Question 16

reports the changes in owner’s equity for a specific period. The period is the same as that covered by the income statement.

Answer 16

Statement of Changes in Owner’s Equity

Question 16

reports the revenues and expenses for a
specific period (For the month ended xxx). The ________ lists revenues first, followed by expenses.

Answer 16

Statement of Comprehensive Income (Income Statement)

Question 17

___________ results when revenues
exceed expenses.

Answer 17

Net income

Question 18

A __________ occurs when expenses exceed revenues.

Answer 18

net loss

Question 19

These are revenues collected or received in advance for the future sale of inventory or performance of services.

These revenues are not yet earned but already collected by the business.

Answer 19

Unearned Revenues