The Accounting Cycle

Question 1

The process of identifying, recording, and communicating business information in the form of financial statements to external users.

Answer 1

Financial accounting

Question 2

People outside the company who depend on information to make decisions. Banks, suppliers, investors, and govt agencies

Answer 2

External users

Question 3

Resources owned by the business. Cash, recievables, inventory, plant assets

Answer 3

Assets

Question 4

Amounts owed to creditors. Payables

Answer 4

Liabilities

Question 5

The owners claim to the resources of the company that are not owed to creditors

Answer 5

Capitol (common) stock

Question 6

Earnings of the company resulting from the sale of goods or rhe provision of services

Answer 6

Revenues

Question 7

Costs to the company necessary to provide the product or service

Answer 7

Expenses

Question 8

Distribution of earnings to the stockholders’ (owners) of the company

Answer 8

Dividends

Question 9

Steps in the accounting cycle:

Analyze Transactions

Answer 9

1

Question 10

Steps in the accounting cycle:

Journalize Transactions

Answer 10

2

Question 11

Steps in the accounting cycle:

Post Transactions

Answer 11

3

Question 12

Steps in the accounting cycle:

Prepare the Unadjusted Trial Balance

Answer 12

4

Question 13

Steps in the accounting cycle:

Prepare, Journalize, and Post Adjusting Entries

Answer 13

5

Question 14

Steps in the accounting cycle:

Prepare the Adjusted Trial Balance

Answer 14

6

Question 15

Steps in the accounting cycle:

Prepare the Financial Statements

Answer 15

7

Question 16

Steps in the accounting cycle:

Prepare, Journalize, and Post Closing Journal Entries

Answer 16

8

Question 17

Steps in the accounting cycle:

Prepare the Post-closing Trial Balance

Answer 17

9

Question 18

Transactions are analyzed using the generally accepted accounting principles (GAAP)

Answer 18

Analyze transactions

Question 19

States that a business is distinct from its creditors, customers, and owners – it is a separate legal entity.

Answer 19

Economic entity assumption

Question 20

In accounting refers to the significance of an amount or item on the financial statements.

Answer 20

Materiality

Question 21

Refers to the use of monetary units - dollars in the United States - to measure the financial statement items

Answer 21

Monetary unit assumption

Question 22

Means that we will assume a company will continue to be in business in the future

Answer 22

Going concern assumption

Question 23

Revenue should be included on an income statement when it is realized an earned.

Answer 23

Revenue recognition principal

Question 24

Says that expenses should be recognized – shown on the income statement – In the same period as the revenues they helped generate.

Answer 24

Matching principle

Question 25

Says that the economic life of a business can be divided into time periods.

Answer 25

Time period Assumption

Question 26

States that a company’s financial statement should report enough information for users to make knowledgeable decisions about the company

Answer 26

Full disclosure principle

Question 27

Increase by buying something on account or by borrowing money and decrease by payment to the creditors to whom the liabilities are owed

Answer 27

Liabilities

Question 28

Increase by purchases and decrease by use and or when sold

Answer 28

Assets

Question 29

Composed of two parts: Common stock and retained earnings

Answer 29

Stockholders equity

Question 30

Is increased by investment of capital

Answer 30

Common stock

Question 31

Is increased by revenues for the business. decreased by expenses of the business and declaration of dividends to the owners

Answer 31

Retained earnings

Question 32

D E A D

Answer 32

Debits increase Expenses, Assets, and Dividends. Credits increase everything else.