TOPIC 4 Flashcards
(20 cards)
What is the Basic Accounting Equation?
Assets = Liabilities + Owner’s Equity.
What is the Extended Accounting Equation?
Assets = Liabilities + Capital - Drawings + Income - Expenses.
What is Double Entry Accounting?
Double Entry Accounting ensures each transaction affects both sides of the accounting equation, maintaining balance.
What are the key components of a General Journal?
Each entry must include: Date, Account Names, Post Reference, Amounts, and Narration.
What are Special Journals?
Special Journals are used for repetitive transactions to save time. Totals are then transferred to the relevant ledger accounts.
What is a Ledger?
A Ledger keeps track of all movements in each business item. Each item has its own ledger with a specific number for classification.
What is the purpose of Adjusting Entries?
Adjusting Entries ensure accrual accounting is upheld, recorded on the last day of the accounting period, and posted to relevant ledgers.
What are Closing Entries?
Closing Entries reset temporary accounts (Income, Expenses, Drawings) to zero for the new period, while permanent accounts (Assets, Liabilities, Capital) carry over.
What is the purpose of a Trial Balance?
A Trial Balance is a list of all ledger accounts and their balances, used to check the accuracy of recording before preparing financial statements.
What is the General Ledger?
The General Ledger is the complete set of all individual ledger accounts used to summarize transactions.
What is the process for Posting to Ledger Accounts?
Posting transfers data from the general journal to ledger accounts, where the date, cross-reference, and amounts are entered.
What is Footing in Ledger Accounts?
Footing is the process of closing ledger accounts, ensuring permanent accounts carry balances over and temporary accounts are reset to zero.
What are the Financial Statements in General Purpose Reporting?
The main financial statements include the Income Statement, Statement of Changes in Equity, Balance Sheet, and Statement of Cash Flows.
What is the Income Statement?
The Income Statement lists revenues and expenses to determine profit or loss for the period.
What is the Statement of Changes in Equity?
This statement tracks changes in capital, including profits, new capital, and drawings for the period.
What is the Balance Sheet?
The Balance Sheet shows the company’s assets, liabilities, and equity at a specific point in time.
What is the Cash Flow Statement?
The Cash Flow Statement tracks cash inflows and outflows, categorized into operating, investing, and financing activities.
What is the correct title format for a Balance Sheet?
The title should be ‘Balance Sheet as at [Date]’ as it is only valid for that particular day.
What is the correct title format for all other financial statements?
The title should be ‘Statement of [Type] for the year ending [Date]’ for all statements except the Balance Sheet.
What is the purpose of correct report titles in financial statements?
Correct report titles ensure clarity about the time period (e.g., ‘as at’ for Balance Sheet, ‘for the year ended’ for others).
