Bookkeeping Flashcards
What does the term bookkeeping mean?
Bookkeeping refers to the recording of financial transactions and may differ in meaning among people.
What is the common misconception about bookkeeping?
Many people think bookkeeping is the same as accounting, involving financial statements and tax reports.
How has technology affected bookkeeping?
Computers and accounting software have blurred the distinctions between bookkeeping and accounting.
What were journals used for in traditional bookkeeping?
Journals were the books of original entry where transactions were recorded in date order.
What are special journals?
Special journals include sales journal, purchases journal, cash receipts journal, and cash payments journal.
What is a trial balance?
A trial balance is an internal report listing each account name and balance to check for errors.
What must be true for a trial balance to be correct?
The total of the debit column must equal the total of the credit column.
What are adjusting entries?
Adjusting entries are made to ensure accounts reflect the accrual basis of accounting.
What is the purpose of closing entries?
Closing entries reset the balances of income statement accounts to zero for the new accounting year.
What is the difference between the accrual method and cash method of accounting?
Accrual method recognizes revenues and expenses when earned or incurred, while cash method recognizes them when cash is received or paid.
What does the accrual method provide in terms of reporting?
A more complete reporting of assets, liabilities, and stockholders’ equity.
What is a key requirement of the accrual method under US GAAP?
Most corporations are required to use the accrual method of accounting.
How are revenues reported under the accrual method?
Revenues are reported when earned, regardless of when cash is received.
What happens to expenses under the accrual method?
Expenses are reported when they best match revenues or when they are used up.
What is double-entry bookkeeping?
Double-entry bookkeeping means every transaction involves at least two accounts.
What is the definition of a debit?
A debit is an entry on the left side of an account.
What is the definition of a credit?
A credit is an entry on the right side of an account.
What must be true for debits and credits in double-entry bookkeeping?
Total debits must equal total credits.
What is a T-account?
A T-account is a visual representation used to show the effects of debits and credits on an account.
True or False: The cash method of accounting is likely to violate the matching principle.
True.
True or False: Accounting software can detect all types of errors.
False.
Fill in the blank: The _______ method of accounting provides a more realistic reporting of revenues and expenses.
[accrual]
What are some common types of financial transactions recorded in bookkeeping?
- Purchase of supplies with cash
- Sale of merchandise on credit
- Salaries and wages earned
- Renting business office
- Borrowing money from a bank
What happens when a transaction is entered twice?
An incorrect amount was entered both as a debit and as a credit.
This may lead to confusion but does not affect the trial balance.