Accounting 4 + 5

Question 1

Ledger

Answer 1

a group/file of accounts

Question 2

Accounts

Answer 2

A record that documents each change to items in the accounting equation
-one per each asset, each liability, etc

Question 3

3 types of ledger types

Answer 3

card, paper, digital

Question 4

T accounts

Answer 4

a simple type of account used for you to understand accounting theory (paper)

Question 5

ledger account

Answer 5

a system used to maintain up to date financial information

Question 6

Debit

Answer 6

The left side of an account
-means debere in latin (to owe)
-begins on the left

Question 7

Credit

Answer 7

The right side of an account
-means credere in latin (to trust)
-begins on the right

Question 8

Accounting entry

Answer 8

An entry of all changes in accounts caused by one business transaction. Expressed by debits and credits.

Question 9

Exceptional Account Balances

Answer 9

A balance that is opposite to normal.
(more credit in an asset t chart)
(more debit in a liability + equity chart)

Question 9

Overdraft Agreement

Answer 9

A financial contract that allows a deposit account to go below zero

Question 10

Overdraft protection

Answer 10

Protection to avoid the embarrassment and service charges when there are non-sufficient funds

Question 11

Short term credit

Answer 11

Credit where the purchaser can delay payment for usually 30 days. The purchaser then has that 30 days to inspect and test the product and may deny payment if the goods are unsatisfactory

Question 12

Purchased on account

Answer 12

An item is purchased on credit, meaning that it is not paid for at the time of purchase

Question 13

Payment on account

Answer 13

If money is paid to a creditor to reduce the owed amount

Question 14

Sale on account

Answer 14

An item is sold on credit, meaning that the purchaser did not pay for it at the time of purchase

Question 15

Receipt on account

Answer 15

If money is received from a debtor to to reduced the amount owed

Question 16

Trial balance

Answer 16

A procedure to check if the dollar debit amount equals the dollar credit amount.

Question 17

Important features of Ledger accounts

Answer 17

1. Each account has its own T account
2. The dollar amount is recorded in the amount on the first line. This is the beginning value
3. The beginning value of an account corresponds to the side of the fundamental accounting equation

Question 18

Debit and Credit Theory

Answer 18

Assets, expenses, and drawings are debited

Liabilities, Equity: Revenue and Capital are credited,

Question 19

Use for trial balance

Answer 19

to balance

Question 20

5 Steps of taking off a trial balance

Answer 20

1. Write headings (who what when)
2. List all accounts and balances (no dollar signs)
3. place debit values and credit values in designated areas
4. Add up columns for both debit and credit
5. See if sum of debit and credit columns balance, if not, check errors.

Question 21

3 steps of taking a trial balance off a calculator

Answer 21

1. Clear the calculator
2. enter values as they appear in the ledger. (Debits have a positive value while credits have a negative)
3. press enter, if it is correct, the total should be zero.

Question 22

The total of an account

Answer 22

pin total, pencil footing, bottom line

Question 23

the 4 steps to fix an imbalanced ledger

Answer 23

1. re-add the trial balance column
2. check if the required accounts are present, on the right side, and accurate.
3. recalculate the account balances
4. check that there is a balanced accounting entry in the accounts for each transaction.

Question 24

Revenues

Answer 24

an increase in equity resulting from the sale of goods or services in the usual course of business
-Usually 1 account but 2 can occur
-Listed on CREDIT

Question 25

Expenses

Answer 25

a decrease in equity due to running the business. Supporting revenue-making activities
-listed on DEBIT
-some expenses don’t have the word “expense” but counts as one

Question 26

Drawings

Answer 26

when the owner takes money out of the business
-not an expense
-doesnt go on income statement
-listed on DEBIT

Question 27

Income statement

Answer 27

a financial report that shows the revenue of a business, subtracts its expenses, and reveals the profit made for a given period of time.
-obligated by law to be created every YEAR
-second most important financial statement.

Question 28

Capital

Answer 28

-will not change unless unusual transactions (investments)
-Doesn’t go to income statement
-listed on CREDIT

Question 29

Net Income

Answer 29

When Revenue is greater than Expense

Question 29

Income Tax Return

Answer 29

A detailed report sent to the government in which they use the net income figure to determine the tax owed by the business

Question 29

Chart of Accounts

Answer 29

A list of the ledger accounts and their numbers arranged in ledger order
100s=asset
200s=liabilities
300s=equity
400s=revenues
500s=expenses
-copies of accounts are given for employees and auditors for insight.

Question 30

Net Loss

Answer 30

When Expense is greater than Revenue

Question 31

Fiscal Period

Answer 31

A period of time over which earnings are measured.
-approximately a year (12 consecutive months)
-Some businesses use half, quarterly, and monthly fiscal periods but annually are required for income tax
-aka, financial period
-aka, accounting period

Question 32

The Time Period Concept

Answer 32

An accounting standard that provides that accounting will take place over a specific time period (fiscal period) and that they are equal in length when measuring the financial progress of a business

Question 32

The Revenue Recognition Principal

Answer 32

A longstanding principle of both GAAP and IFRS requires revenue to be recorded in the accounts at the time the transaction was completed.
-this is done so that it promotes accurate revenue recognition.

Question 32

Income statements are used by

Answer 32

Owners and managers, Bankers, Investors, and income tax authorities. (all for insight)

Question 32

Purpose of expanding the ledger

Answer 32

more detail and insight on information

Question 32

What is a transaction analysis sheet used for

Answer 32

Provides a place to organize your thoughts about the transaction

Question 33

The Matching Principle

Answer 33

A accounting principle stating that each expense item related to revenue earned must be in the same period as the revenue it helped to earn.
-done so that the accounting information does not mismatch.
-if split in 2 years, the expense must be split accordingly.
-failure to do so will mess up both years of misinformation

Question 33

The equity equation (with net loss)

Answer 33

Beginning Capital - Net loss - drawings = ending capital

Question 33

the equity equation (with net income)

Answer 33

Beginning Capital + net income -Drawings = Ending Capital