Accounting Cycle 1-4

Question 1

Is “stockholders’ equity” located on the left side or right side of the accounting equation? What is there “normal balance”?

Answer 1

Located on the right side.
Normal credit balance is a CREDIT
Therefore:
-CREDITS will INCREASE
-DEBITS will DECREASE

Question 2

What are the steps in determining the increase or decrease of a balance sheet account?

Answer 2

1) Draw a T-account and label each side of the T-account as either debit (left side) or credit (right side)
2) Determine the normal balance of an account
3) Increases or decreases to an account are based on the normal balance of the account

Question 3

What are the steps of preparing a journal entry?

Answer 3

1) analyze the transaction
2) determine which accounts are being affected
3) using the debit and credit procedures record the transaction

Question 4

What is a “general ledger”?

Answer 4

a collection of all the individual financial statement accounts that a company uses in its financial statements

Question 5

What is an “account”?

Answer 5

a record of increases and decreases in each of the basic elements of the financial statements (asset, liability, stockholders’ equity, revenue, expense, gain, and loss items)

Each financial statement element is composed of a variety of accounts

Question 6

What are the parts of a journal entry?

Answer 6

-the date of the transaction
-the accounts and amounts to be increased or decreased
-a brief explanation of the transaction

Question 7

In the expanded accounting equation, what elements make up “retained earnings”?

Answer 7

Beginning retained earnings +
Revenues -
Expenses -
Dividends Declared

Question 8

What is a “transaction”?

Answer 8

Any event, external or internal, that is recognized in the financial statements.

Question 9

What is a “journal entry”?

Answer 9

a record of a transaction that is made in a journal so that the entire effect of the transaction is contained in one place

The process of making a journal entry is often referred to as journalizing a transaction (step 2 of the accounting cycle “journalize transactions”)

Question 10

Are “assets” located on the left side or right side of the accounting equation? What is there “normal balance”?

Answer 10

Assets are on the left side.
Assets normal balance is a DEBIT
Therefore:
-DEBITS will INCREASE assets
-CREDITS will DECREASE assets

Question 11

What’s the first question you should ask of a transaction when performing step 1 of the accounting cycle (analyze transactions)?

Answer 11

Has a financial statement element (assets, liabilities, stockholders’ equity, revenues, expenses, gains, losses) changed?
If the answer is Yes move to question 2
If the answer is No, you don’t record the transaction

Question 12

What is the full expanded accounting equation?

Answer 12

Assets = Liabilities +
Contributed Capital +
Beginning retained earnings + Revenues - Expenses -
Declared Dividends

Question 13

In the expanded accounting equation, what elements make up “stockholders’ equity”?

Answer 13

Contributed Capital +
Retained Earnings

Question 14

What is the first step of transaction analysis? (step 1 of the accounting cycle “analyze transactions”)

Answer 14

Gather source documents.
includes items such as purchase orders, cash register tapes, and invoices that describe the transaction and monetary amounts involved

Question 15

What’s the second question you should ask of a transaction when performing step 1 of the accounting cycle (analyze transactions)?

Answer 15

If you answered yes, that the transaction affects a financial statement element then ask:
Can I measure the event reliably?
If the answer is yes, record the transaction
If the answer is no, do not record the transaction

Question 16

What is a “chart of accounts”?

Answer 16

A list of accounts used by the company

Question 17

What is the “posting reference” column?

Answer 17

Located on a journal and ledger to show where the other entry can be found for reference

As the information is copied into the ledger, the number assigned to the account is placed in the “Posting Reference” column of the journal and the journal page number is placed in the “Posting Reference” column of the ledger

Question 18

What is the second step of transaction analysis? (step 1 of the accounting cycle “analyze transactions”)

Answer 18

accountants must analyze the business activities (source documents) to determine which transactions meet the criteria for recognition in the accounting records

Question 19

How many affects will a recorded transaction have?

Answer 19

Will have two effects as the accounting equation must always remain in balance

Question 20

What does “debit” and “credit” stand for in a “T-account”

Answer 20

The left side and the right side.

DOES NOT represent increase and decrease

simply refer to where an entry is made in an account

Question 21

If debits and credits aren’t equal on a trial balance, what could this mean?

Answer 21

an error had been made
The error could have been:
-in the journalizing of the transaction
-the posting of the transaction
-the computation of the balance in the ledger

*a trial balance whose debits DO equal credits does not mean that all transactions were recorded correctly

Question 22

What is a “normal balance”?

Answer 22

the type of balance expected of an account based on its effect on the fundamental accounting equation.
-Assets, expenses, and dividends have normal DEBIT balances
-Liabilities, stockholders’ equity, and revenues have normal CREDIT balances

Question 23

What is a “journal”?

Answer 23

a chronological record showing the debit and credit effects of transactions on a company

also referred to as the book of original entry

Question 24

What is a “trial balance”?

Answer 24

a list of all active accounts and each account’s debit or credit balance

step 4 of the accounting cycle

used to prove the equality of debits and credits

Question 25

What is “posting”?

Answer 25

the process of transferring information from journalized transactions to the general ledger

Step 3 of the accounting cycle - Post to the Ledger

Question 26

What do you call the left side of a “T-account”?

Answer 26

Debit side

Question 27

What are the three “fundamental accounts” of a balance sheet?

Answer 27

Assets
Liabilities
Stockholders’ Equity

Question 28

What is a “T-account”?

Answer 28

a graphical representation of an account that gets its name because it resembles the capital letter T.
A two-column record that consists of an account title and two sides divided by a vertical line—the left side is called the debit side and the right side is called the credit side

Question 29

What are the simplified three steps of analyzing transactions?

Answer 29

1) Write down the expanded accounting equation
2) Identify the elements affected by the transactions
3) Determine whether the elements increase or decrease

Question 30

What do you call the right side of a “T-account”?

Answer 30

Credit side

Question 31

Are “liabilities” located on the left side or right side of the accounting equation? What is there “normal balance”?

Answer 31

Liabilities are on the right side.
Liabilities normal balance is a CREDIT
Therefore:
-CREDITS will INCREASE liabilities
-DEBITS will DECREASE liabilities

Question 32

What acronym can you use to remember the extra long fundamental accounting equation (used on youtube example)?

Answer 32

“DEALER”
Dividends +
Expenses +
Assets =
Liabilities +
owners Equity +
Revenue

Question 33

How can you think of “debits”?

Answer 33

Left side of T-account

Represents the flow of economic benefit to a destination

Include dividends, expenses, assets

Question 34

How can you think of “credits”?

Answer 34

Right side of T-account

Represents to flow of economic benefit from the source

Include liabilities, owners equity (paid in), revenue

Question 35

What order are accounts listed in a “trial balance”?

Answer 35

listed in the order they appear in the ledger—assets first, followed by liabilities, stockholders’ equity, dividends declared, revenues, and expenses