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Financial Acc Systems 1 > Ch 3 > Flashcards

Ch 3 Flashcards

0
Q

4 factors that shape financial accounting systems of companies?

A

1 nature of the business
2 size of the firm
3 volume of data handled
4 informational demands that management and others require

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1
Q

Accounting information system

A

Collects and processes transaction data and disseminates

the financial info to interested parties

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2
Q

4 basic concepts of financial accounting?

A

1 identifying
2 recording
3 classifying
4 interpreting transactions

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3
Q

Event

A

A happening of consequence

A source or cause of changes in assets, liabilities
And equity

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4
Q

Transaction

A

An external event involving transfer or exchange btw

2 or more entities

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5
Q

Account

A

Systematic arrangement that shows the effect of transactions

And other events on a specific element (asset, liability, etc.)

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6
Q

Real accounts

A

Permanent accounts appear on balance sheet

Include asset, liability and equity accounts

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7
Q

Nominal accounts

A

Temporary accounts appear on the income statement
and are closed periodically

Include revenue, expense, dividend (statement or retained earnings)

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8
Q

Ledger

A

Book or printout containing accounts

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9
Q

General ledger, subsidiary ledger?

A

General ledger is a collection of asset, liability,
Owners’ equity, revenue and expense accounts

Subsidiary ledger includes details related to
General ledger account

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10
Q

Journal, journalizing

A 
Book of original entry where company 
records transactions (journalizing)
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11
Q

Posting

A

transferring amounts from journal to ledger

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12
Q

Trial balance

A

List of all open accounts in ledger and their balances

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13
Q

Adjusted trial balance, post-closing trial balance?

A

Adj TB = trial balance taken immediately after adjustments
Primary basis for preparation of financial statements

PC TB = TB taken immediately after closing entries have
Been posted
Proves equality of permanent account balances

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14
Q

Adjusting entries

A

Entries made at end of accounting period to bring
All accounts up to date on an accrual basis to
Prepare correct financial statements

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15
Q

Financial statements

A

Statements that reflect the collection, tabulation and

Final summarization of accounting data

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16
Q

Balance sheet

A

Shows financial condition of enterprise at end of

A period

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17
Q

Income statement

A

Measures results of operations during period

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18
Q

Statement of cash flows

A

Reports cash provided and used by operating, investing

And financing activities during period

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19
Q

Statement of retained earnings

A

Reconciles the balance of retained earnings account

From the beginning to end of the period

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20
Q

Closing entries

A

Formal process where enterprise reduces all nominal accounts
To zero and determines transfers of net income or loss
To owners’ equity account

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21
Q

Debit and credit, debit balance, credit balance?

A

Left and right respectively

Comparing a total on the left side is a debit balance
(exceeds right side)

Comparing a total on the right side is a credit balance
(exceeds left side)

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22
Q

Double entry accounting system

A

Company records two-sided effect of each transaction

In appropriate accounts

23
Q

External events, 3 examples

A

Involve interaction between an entity and it’s environment

Ex 1 Change in price of good or service an entity buys or sells

Ex2 flood or earthquake

Ex 3 improvement in technology by competitor

24
Q

Internal events, 2 examples, define?

A

Occur within an entity

Ex 1using buildings and machinery in operations

Ex 2 transferring or consuming raw materials in production process

25
Q

Internal control

A

Company records as many events as possible that

Affect its financial position

26
Q

General journal

A

Chronologically lists transactions or other events

Expressed in terms of debits or credits

27
Q

4 parts of general journal entry?

A

1 Accounts and amounts to be debited

2 accounts and amounts to be credited

3 date

4 explanation

28
Q

Special journals

A

Summarize transactions processing a common characteristic
(cash receipts, sales, purchases, cash payments)

Reduce bookkeeping time

29
Q

4 steps of posting?

A

1 in ledger enter date, journal page and amount shown
in journal for debit

2 in reference column of journal write account # to which
Debit amount was posted

3 in ledger enter date, journal page and amount shown
in journal for credit

4 in reference column of journal write account # to which
Credit amount was posted

30
Q

Standard account form AKA 3-column form of account

A

Has 3 money columns debit, credit and balance

31
Q

What 2 things does the posting reference number column represent?

A

1 indicates ledger account number involved

2 indicates completion of posting for particular item

32
Q

2 purposes of transaction analysis?

A

1 identify the type of account involved

2 determine whether a debit or credit is required

33
Q

3 procedures for preparing a trial balance?

A

1 list account titles and balances to appropriate debit
Or credit column

2 total the debit and credit columns

3 prove equality of 2 columns

34
Q

3 main reasons for preparing adjustment entries?

A

1 Some events aren’t recorded daily b/c its not efficient
Ex. Use of supplies, earnings by employees

2 some costs are not recorded during accounting period
B/c these costs expire with the passage of time
Ex. Depreciation, rent, insurance

3 some items may be unrecorded
Ex. Utility service bill that won’t be received til next
Accounting period

35
Q

Categories of adjusting entries?

A

Deferrals and accruals

36
Q

2 types of deferrals?

A

Prepaid expenses: expenses paid in cash before used or consumed

Unearned revenues: cash received before services are
Performed

37
Q

2 types of accruals:

A

Accrued revenues: revenues for services performed but not
Yet received in cash or recorded

Accrued expenses: expenses incurred but not yet paid in
Cash or recorded

38
Q

Deferrals

A

Expenses or revenues that are recognized at a date

Later than the point when cash was originally exchanged

39
Q

What happens if company doesn’t make an adjustment for its deferrals?

A

The asset or liability is overstated

40
Q

What does an adjusting entry to a prepaid expense account result in?

A

Debit to the expense account and credit to asset account

41
Q

Useful life

A

How long asset is expected to be productive

42
Q

Depreciation

A

Process of allocating the cost of an asset to
Expense over its useful life in a systematic manner

Estimate of expired cost

43
Q

Contra asset account

A

Offsets an asset account on a balance sheet as a credit

Account

44
Q

Book value

A

Difference between assets cost and it’s accumulated

Depreciation

45
Q

Depreciation as an allocation concept?

A

Not a valuation concept, so doesn’t report fair value
Allocates an asset’s cost to periods which it is used

Depreciation does not attempt to report actual change
In the value of the asset

46
Q

How is unearned revenue treated in accounting?

A

Unearned revenue is a credited liability account

During adjustments unearned revenue is debited
And the revenue account is credited

47
Q

The adjustment for accruals will…

A

Increase the balance sheet and income statement accounts

48
Q

An adjusting entry to accrued revenue results in?

A

Debit increase to assets and credit increase to revenue

accounts

49
Q

Bad debt expense

A

Uncollectible accounts are recorded as bad debt expense

50
Q

Allowance for doubtful accounts

A

Contra asset account of estimated uncollectible accounts

51
Q

Income summary

A

Account used to close revenues and expenses into

Retained earnings

52
Q

Reversing entry

A

Reverse affects of adjustment entry made at

Beginning of next accounting period

53
Q

8 steps in accounting cycle?

A 
1 identify and measure transactions
2 journalizing
3 posting
4 preparing unadjusted trial balance 
5 make adjustment entries
6 prepare adjusted trail balance
7 prepare financial statements
8 closing entries
54
Q

How do financial statements differ between a merchandiser

And a service company?

A

Merchandiser must account for gross profit from sales

Financial Acc Systems 1 (22 decks)

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