2-2 Transactions

Question 1

Accounting Information System

Answer 1

Designed to record accurate financial data in a timely and chronological manner, facilitate retrieval of financial data in a form useful to management

Question 2

Ledger

Answer 2

Accounting system that organizes all accounts

Question 3

Chart of Accounts

Answer 3

Each account in the ledger (each assigned a unique number)

Typically numbered by the order of the balance sheet

Question 4

The number of accounts in the chart of accounts typically varies by….

Answer 4

The size and complexity of the transactions of a company, the chart of accounts is tailored to the company’s industry and its specific needs

Question 5

T Account

Answer 5

A form of a ledger used for summarizing transactions

Question 6

Does debit always imply an increase and credit always imply a decrease?

Answer 6

Not necessarily

It depends on the account type and the normal balance

Question 7

Permanent Accounts

Answer 7

Accounts appearing on the balance sheet
Assets, Liabilities, Stockholder’s Equity
Balances are carried forward

Question 8

Temporary Accounts

Answer 8

Accounts appearing on the income statement
Revenues, Expenses, Gains, and Losses
Closed (zeroed out) and balances are transferred to the permanent account Retained Earnings at the end of each period

Question 9

Accounting Cycle

Answer 9

The steps leading to the preparation of financial statements

Question 10

Is the Accounting Cycle completed manually?

Answer 10

No, accounting application software is often used to perform the majority of steps

Question 11

QuickBooks and Sage

Answer 11

Small to Mid-Sized Companies

Question 12

SAP and Oracle PeopleSoft Enterprise Planning Systems

Answer 12

Mid-Sized to Large Companies

Question 13

Steps 1-3 of the accounting cycle….

Answer 13

Require the most time and effort

take place during the accounting period

Question 14

Steps 4-7 of the accounting cycle…

Answer 14

Occur at the end of each accounting period

Question 15

Steps 8 & 9 of the accounting cycle…

Answer 15

Occur at the end of the fiscal year

Question 16

Steps of the Accounting Cycle

Answer 16

1. Identify Transactions
2. Record Transactions in Journal
3. Post from Journal to Ledger
4. Prepare Unadjusted Trial Balance
5. Post Adjusting Entries
6. Prepare Adjusted Trial Balance
7. Prepare Financial Statements
8. Post Closing Entries
9. Prepare Post-Closing Trial Balance

Question 17

Step 1 of the Accounting Cycle

Answer 17

Identify Transactions and Events to be Recorded

Question 18

External Events

Answer 18

The exchange of resources and obligations between the reporting company and outside parties
(Beyond the control of the company, generally require a journal entry)

Question 19

Reciprocal Transfer

Answer 19

The company both transfers and receives resources

Ex: Sales of Goods

Question 20

Non-Reciprocal Transfer

Answer 20

The company either transfers of receives resources

Ex: Payments of Cash Dividends

Question 21

Internal Events

Answer 21

Occur within the company affecting its resources or obligations, and do not involve outside parties
Ex: Recognition of depreciation of long-lived assets
Ex: Use of inventory for production
(Generally require a journal entry)

Question 22

Source Document

Answer 22

Generally a record (electronic or paper) that describes the exchange, the parties involved, the date, and the amount
Ex: Sales Invoice, Cash Register Receipts, etc.

Question 23

_________ __________ are essential for the initial recording of transactions in a journal and are also used for subsequent tracing and verification, for evidence in legal proceedings, and for audits of financial statements

Answer 23

Source Documents

Question 24

Step 2 of the Accounting Cycle

Answer 24

Record Transactions and Events in a Journal

Question 25

General Journal

Answer 25

A chronological record of transactions, organized in a debit-credit format

Question 26

Step 3 of the Accounting Cycle

Answer 26

Post from Journal to Ledger

Question 27

Posting

Answer 27

Transferring transaction data from the journal to the ledger

Question 28

Account Classification

Answer 28

Posting reclassifies data from chronological data to data by specific account

Question 29

How does computerized accounting systems effect journal entries?

Answer 29

They automatically generates a posting to the corresponding ledger accounts

Question 30

Cross-Referencing

Answer 30

Important when posting large numbers of transactions, detecting and correcting errors, and maintaining an audit trail

Question 31

General Ledger vs. Subsidiary Ledgers

Answer 31

General ledger holds control accounts

Subsidiary ledgers support the general ledger and consist of many separate individual accounts

Question 32

Only ______ accounts are used in preparing financial statements.

Answer 32

Control