BURNLEY 1e: Chapter 3 Review

Question 1

Accounting cycle

Answer 1

The sequence of steps that occurs in the recording, summarizing, and reporting of events in the accounting system.

Question 2

Accruals

Answer 2

Adjusting journal entries required when a company needs to recognize a revenue or expense before the receipt or payment of cash.

Question 3

Accumulated depreciation

Answer 3

The total amount of depreciation that has been taken on an asset, up to a particular point in time.

Question 4

Adjusted trial balance

Answer 4

A listing of the accounts and their balances after the adjusting entries have been made, but before the closing entries have been made.

Question 5

Adjusting entries

Answer 5

Journal entries made at the end of the accounting period to record an event or transaction that was not recorded during the period. Events or transactions that are not signalled in any other way are recorded through adjusting entries.

Question 6

Carrying amount

Answer 6

The full value of all of a company’s accounts receivable less the allowance for doubtful accounts. In the context of long-term assets, carrying amount or carrying value is equal to the asset’s cost, less accumulated depreciation, less accumulated impairment losses. It represents the portion of the asset’s cost that has yet to be expensed. Synonym for net book value.

Question 7

Chart of accounts

Answer 7

A listing of the names of the accounts used in a particular accounting system.

Question 8

Closing entries

Answer 8

Entries made at the end of the accounting period to transfer the balances from the temporary revenue, expense, and dividend declared accounts into the retained earnings account. Resets the balance of all temporary accounts to zero.

Question 9

Compound journal entry

Answer 9

A journal entry with more than two parts (i.e., multiple debits and/or multiple credits). Of course, as with any journal entry, the total amount debited must equal the total amount credited.

Question 10

Contra-asset account

Answer 10

An account used to record reductions in a related asset account. An example is accumulated depreciation.

Question 11

Credit

Answer 11

The right side of a T account, or an entry made to the right side of a T account.

Question 12

Debit

Answer 12

The left side of a T account, or an entry made to the left side of a T account.

Question 13

Deferrals

Answer 13

Adjusting journal entries required when a company needs to recognize a revenue or expense in an accounting period after the cash has been received or paid.

Question 14

Double-entry accounting system

Answer 14

An accounting system that maintains the equality of the basic accounting equation by requiring that each entry have equal amounts of debits and credits.

Question 15

General journal

Answer 15

A chronological listing of all the events that are recorded in a company’s accounting system.

Question 16

General ledger (G/L)

Answer 16

The financial records containing details on a company’s asset, liability, and shareholders’ equity, revenue, and expense accounts

Question 17

General ledger account

Answer 17

An account in the general ledger.

Question 18

Income Summary account

Answer 18

An optional account that is often used when closing the books, to summarize all the temporary income statement accounts (revenues and expenses) before transferring the net income to retained earnings.

Question 19

Journal entry

Answer 19

An entry made in a journal to record a transaction or event.

Question 20

Liquidity

Answer 20

An organization’s short-term ability to convert its assets into cash to be able to meet its obligations and pay its liabilities.

Question 21

Normal balance

Answer 21

The balance (debit or credit) that an account is normally expected to have. Assets, expenses and losses normally have debit balances. Liabilities, shareholders’ equity, revenues and gains normally have credit balances. It is also used to indicate how the account is increased in a journal entry. The opposite of an account’s normal balance is used to record a decrease to the account.

Question 22

Permanent accounts

Answer 22

Accounts whose balances carry over from one period to the next. All statement of financial position accounts are permanent accounts.

Question 23

Posting

Answer 23

The process of transferring the information recorded in journal entries to the ledger accounts. A synonym for posting the accounts.

Question 24

Temporary accounts

Answer 24

Accounts used to keep track of information temporarily during each accounting period. The balances in these accounts are eventually transferred to a permanent account (retained earnings) at the end of the period by making closing entries.

Question 25

Trial balance

Answer 25

A listing of all the ledger accounts and their balances. Used to check whether the total of the debit balances is equal to the total of the credit balances.