2-2 Transactions Flashcards
Accounting Information System
Designed to record accurate financial data in a timely and chronological manner, facilitate retrieval of financial data in a form useful to management
Ledger
Accounting system that organizes all accounts
Chart of Accounts
Each account in the ledger (each assigned a unique number)
Typically numbered by the order of the balance sheet
The number of accounts in the chart of accounts typically varies by….
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
T Account
A form of a ledger used for summarizing transactions
Does debit always imply an increase and credit always imply a decrease?
Not necessarily
It depends on the account type and the normal balance
Permanent Accounts
Accounts appearing on the balance sheet
Assets, Liabilities, Stockholder’s Equity
Balances are carried forward
Temporary Accounts
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
Accounting Cycle
The steps leading to the preparation of financial statements
Is the Accounting Cycle completed manually?
No, accounting application software is often used to perform the majority of steps
QuickBooks and Sage
Small to Mid-Sized Companies
SAP and Oracle PeopleSoft Enterprise Planning Systems
Mid-Sized to Large Companies
Steps 1-3 of the accounting cycle….
Require the most time and effort
take place during the accounting period
Steps 4-7 of the accounting cycle…
Occur at the end of each accounting period
Steps 8 & 9 of the accounting cycle…
Occur at the end of the fiscal year
Steps of the Accounting Cycle
- Identify Transactions
- Record Transactions in Journal
- Post from Journal to Ledger
- Prepare Unadjusted Trial Balance
- Post Adjusting Entries
- Prepare Adjusted Trial Balance
- Prepare Financial Statements
- Post Closing Entries
- Prepare Post-Closing Trial Balance
Step 1 of the Accounting Cycle
Identify Transactions and Events to be Recorded
External Events
The exchange of resources and obligations between the reporting company and outside parties
(Beyond the control of the company, generally require a journal entry)
Reciprocal Transfer
The company both transfers and receives resources
Ex: Sales of Goods
Non-Reciprocal Transfer
The company either transfers of receives resources
Ex: Payments of Cash Dividends
Internal Events
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)
Source Document
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.
_________ __________ 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
Source Documents
Step 2 of the Accounting Cycle
Record Transactions and Events in a Journal
General Journal
A chronological record of transactions, organized in a debit-credit format
Step 3 of the Accounting Cycle
Post from Journal to Ledger
Posting
Transferring transaction data from the journal to the ledger
Account Classification
Posting reclassifies data from chronological data to data by specific account
How does computerized accounting systems effect journal entries?
They automatically generates a posting to the corresponding ledger accounts
Cross-Referencing
Important when posting large numbers of transactions, detecting and correcting errors, and maintaining an audit trail
General Ledger vs. Subsidiary Ledgers
General ledger holds control accounts
Subsidiary ledgers support the general ledger and consist of many separate individual accounts
Only ______ accounts are used in preparing financial statements.
Control
