The Accounting Cycle: During the Period

Question 1

Who do companies have business transactions with?

Answer 1

• Suppliers, Consultants, Vendors
• Customers
• Employees
• Creditors (ie. Banks, Bondholders)
• Investors

Question 2

What are transactions supported by?

Answer 2

Source Documents

• Purchase Orders
• Invoices
• Contracts
• Promissory Notes
• etc.

Question 3

What transactions must be recorded and measured?

Answer 3

Transactions that have an economic impact on the company.

Question 4

Every transaction has what effect on the accounting equation?

Answer 4

Dual Effect

Question 5

If total assets INCREASE, then liabilities or stockholders equity ____ by the same amount.

Answer 5

Increases

Question 6

If total assets DECREASE, the liabilities or stockholders equity _____ by the same amount.

Answer 6

Decreases

Question 7

What are the three questions to ask to understand the affects of a transaction?

Answer 7

1. What is one account affected by the transaction?
   - Does this account increase or decrease?
2. What is a second account affected by the transaction?
   - Does this account increase or decrease?
3. Do assets equal liabilities plus stockholders’ equity?
   - IT MUST. EVERYTIME.

Question 8

What is a preliminary Income Statment?

Answer 8

A preliminary income statement reports the company’s revenues and expenses over an interval of time (e.g., a month, quarter, or year)

It compares revenues and expenses for the current period to assess the company’s ability to earn a profit from running its operations.