Bookkeeping basics Flashcards
True or False: Journal entries require a good understanding of debits and credits.
True
When would it be acceptable to use Manual Journal entries to hide or disguise certain financial transactions?
Never
True or False: Journal entries should not be used during year-end adjustments.
False
Who should decide what to manually enter into general journal entries?
Accountant
True or False: Journal entries should not be used to enter depreciation.
False
What are the six steps in the accounting cycle?
Collect and analyze transactions
Record/Post transactions to the ledger
Prepare an unadjusted trial balance
Prepare adjusting entries at the end of the period
Prepare an adjusted trial balance
Prepare Financial Statements.
What is a general ledger?
A set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports. Each account is a unique record summarizing a specific type of asset, liability, equity, revenue or expense.
What is posting to the ledger?
Reorganization of all the journal entries and grouping like items together. Like assets starting at 101 being assets and ending with 606 being expenses.
What is step one in the accounting process?
Collect and analyze transactions.
What is step two in the accounting process?
Record/Post transactions to the ledger
What is step three in the accounting process?
Prepare an unadjusted trial balance
What is step four in the accounting process?
Prepare adjusting entries at the end of the period
What is step five in the accounting process?
Prepare an adjusted trial balance
What is step 6 in the accounting process?
Prepare Financial Statements.
A numbered list that contains all accounts needed to prepare financial statements is known as?
The General Ledger
Reorganizing journal entries and grouping them by account is known as?
Posting to the ledger
To find the balance of the account types that increase with a debit (asset and expense accounts), bookkeepers will?
Subtract total credits from total debits (Debits - Credits)
The accounting cycle starts with the?
Analysis of business transactions
After analysis, the business transaction is recorded in the journal in
Chronological order
The names of ALL ACCOUNTS that a company has identified and made available for recording transactions in its general ledger is known as a:
Chart of Accounts
A form or statement that lists the titles and balances of all ledger accounts at a given date is known as:
Trial balance
Sydney is entering a transaction in QuickBooks. What are the two steps of manual accounting that will happen simultaneously as she does this?
Creating a journal entry and posting to the ledger
The digits of the account numbers assigned to general ledger accounts often have significance. For example, an account number beginning with a “1” might signify that the account is an asset account, a “6” might signify an operating expense, etc.
True
A trial balance where total debits equal total credits indicates:
The ledger is in balance.
Zach needs to determine what his company’s financial position was on March
31st of last year. Where should he look?
Balance sheet
Which of the following financial statements reports the sources and uses of cash by a business?
Statement of Cash Flow
This lists general ledger account balances at the end of a reporting period, before any adjusting entries are made?
Unadjusted Trial Balance
A trial balance that is prepared after taking into account all the adjusting entries is known as:
Adjusted Trial Balance
The preparation of financial statements and closing the books is the ______ step of the accounting cycle.
last
Rudiger has just recorded and posted his business transactions to the ledger.
His next step in the accounting cycle is to _______.
prepare an unadjusted trial balance
Francis enters a $100 check received from a customer into QuickBooks online. If she views the Transaction Journal, which account would show as being
debited $100?
Business bank account
The double-entry system of bookkeeping normally results in which of the following balances in the ledger accounts?
Debit: Assets and expenses
Credit: Liabilities, equity, and revenue
In the first month of operations, Pepper Consulting’s total debit entries to the cash account amounted to $900, and the total credit entries to the cash account amounted to $600. The cash account has a:
$300 debit balance
Pepper Consulting bought computers with credit from PYO Suppliers and entered the purchase into QuickBooks. The transaction journal for Pepper Consulting would show the following entry:
Debit: Computers
Credit: PYO Credit Payable
True or False: The difference between a sales receipt and an invoice is whether or not the customer pays at the time of the sale or service.
True
What is the “undeposited funds” account?
A temporary account that holds payments you plan to deposit later.
When would the undeposited funds feature not be necessary?
When you’ve already deposited the funds during the receive payment process.
What is a deferral?
Deferrals remove transactions that belong to a different time period. Example: Paid upfront but the job hasn’t been completed yet.
What is an accrual?
Accruals are the opposite of deferrals. They concern the future payment or expenses. Example: Did a job for a customer but havent paid YOU yet.
What is a Missing Transaction?
Transaction that slips through the cracks and is not recorded right away.
What is a tax adjustment?
Tax adjustments usually happen once a year and are related to tax filings. Example: File a tax return and discovered he received a tax credit. The credit was then posted to his book as an adjustment.
True or False: It is always the bookkeeper’s responsibility to identify the need for adjusting journal entries.
False
True or False: Once the adjusted trial balance has been prepared, it’s time to create the financial statements.
True
If you’re increasing an Interest Expense account, you _____ it.
Debit
Which report includes the assets, liabilities, and owner’s equity on a specific date?
The Balance Sheet
Which report provides a summary of changes in an owner’s equity?
The Statement of Equity
Which report provides a summary of cash movement over a specific time period?
The Cash Flow Statement.
Which report is used to calculate net income?
The Income Statement
Which of the following financial statements provides a summary of a company’s revenue and expenses over a period of time?
The Income Statement
Question 2
Which of the following financial statements provides you with the owner’s change in capital over time?
The Statement of Equity
Which of the following financial statements shows the balances of a company’s assets, equity, and liability?
The Balance Sheet
Which of the following financial statements provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investments?
The Statement of Cash Flow
A seasonal business like Lou’s Landscaping can have decreased cash during off-season months. Which financial statement would show the cash inflows and outflows for a particular month?
Cash Flow Statement
Which of these accounts would have a balance of $0 at the beginning of each new accounting period?
Revenue
A business owner performs a service and is paid when the job is completed. The owner would then enter this transaction into accounting software as
A Sales Receipt
A business owner performs a service but is not paid when the job is performed. Using their accounting software, the owner would enter the transaction as:
An Invoice
True or False: The ending cash balance on the Statement of Cash Flow should
not equal the cash balance reported on the Balance Sheet.
False
A customer paid in advance for a service. They need to cancel the service. If the business owner wishes to apply that money towards the customer’s next service, the owner would enter that transaction into their accounting software as:
A Credit Memo
True or False: In order to complete a Statement of Equity, you will need the net profit from the Income Statement.
True
True or False: Business owners should use the General Ledger to make business decisions.
False
A Balance Sheet has four parts: a heading, assets, liabilities, and ______.
equity
True or False: Financial reports should be produced before any adjustments have been made.
False
An owner has deposited several payments they’ve received from customers into the business’s bank account. The owner would then enter this transaction in their accounting software as:
A Bank Deposit
After the Unadjusted Trial Balance is created, the process of going back and updating information is known as:
Making adjustments
A business owner had a piece of equipment serviced and paid for the repair with a check. The owner would then enter the transaction into their accounting software as:
A Vendor Check
The document that shows all of the account balances after adjustments have been made is known as:
The Adjusted Trial Balance
Becky provided a service to a customer, and they have yet to pay. Which type of journal entry would need to be made?
An Accrual
True or False: The depreciation of a vehicle is not something that can be entered as an adjustment.
False
This type of assumption/principle requires a business to disclose all information about the business that is important for a lender or investor to know in financial statements in the financial statement notes.
Full Disclosure Principle
The Economic Entity Assumption states:
Business and personal financial activities must be separate for business owners.
When the bookkeeper or accountant has a choice between two acceptable alternatives, they should choose the one that will report less profit, less asset amount, or a greater liability amount. This is based upon which assumption/principle?
Conservatism Assumption
Your client Rosie Fern wants to add the cost of the trellises she built for her herbal gardening business but can’t find a receipt or proof that she paid.
The Reliability Assumption
When a bookkeeper is using the US dollar as currency in accounting and is not considering changes in the value of that currency she is employing the:
Monetary Unit Assumption
This assumption / principle is very subjective and should be used with caution outside of rounding to the nearest dollar when entering financial information.
Materiality Principle
A company is considered a Going Concern when it:
Is stable, able to operate and able to meet its financial obligations.
Cecilia Tubular sells 1980s themed enamel pins. She has a huge inventory she purchased in 1984 at $0.10 each. They are now worth $1 each. According to the Monetary Unit Assumption, you:
Keep the value of the pins at $0.10 each.
If a business is using the Consistency Principle they will:
Adopt a specific accounting method and will enter all similar items in the exact same way in the future.
True or False: According to the Periodicity Assumption, companies can only
review their financial health at the end of their fiscal year?
False
A client owns a small vinyl sign printing company called Printing Pros. They completed a print job for a customer on August 10, but the customer did not pay for the service until October 15.
In which month should the revenue be recognized for this big print job?
August
Printing Pros had another big job to do in April and needed to hire additional help to make their deadline. The new employee received their first paycheck at the beginning of May.
When should Printing Pros recognize the expense of paying their employee?
April
According to the Revenue Recognition Principle, when should a business recognize its revenue?
When it is earned.
Which of the following best describes the Periodicity Assumption?
Companies can assume that business activity can be broken up into smaller measurements of time.
Which of the following statements would best describe the Matching Principle?
Expenses like manufacturing costs or depreciation should be recognized in the same period as the revenue it helped generate.
According to the Cash-Basis accounting method, when would a business recognize its expenses?
When the expense is paid out
True or False: An advantage of using the Accrual Method of accounting is that it provides a fuller picture of the state of the business.
True
It is permissible to use a combination of the Cash-Basis and Accrual methods of accounting as long as it is applied consistently and clearly and reflects the business’s income and expenses.
True
