Chapter #2 Flashcards
remember for midterm
What does the “Analyze” step in the accounting cycle involve?
Determining what information, if any, must be recorded in a company’s accounting records.
What is involved in the “Recorder” step of the accounting cycle?
Journalizing entries and preparing an unadjusted trial balance.
What happens in the “Adjust” step of the accounting cycle
Journalizing adjusting entries
What happens in the “Report” step of the accounting cycle?
Preparing financial statements
What does the “Close” step in the accounting cycle involve?
Journalizing closing entries and preparing a post-closing trial balance.
What is an accounting transaction?
An economic event that must be reflected in a company’s accounting equation (Assets = Liabilities + Stockholders’ Equity).
What is the purpose of double entry accounting?
To ensure the accounting equation remains balanced by affecting at least two elements of the equation.
What does the monetary unit concept require?
To record only monetary accounting transactions.
How do you calculate ending retained earnings?
Ending retained earnings = Beginning retained earnings + Net income - Dividends.
What is the expanded accounting equation?
Assets = Liabilities + Common Stock + Retained Earnings (which includes Revenue - Expenses - Dividends).
What is the effect of debits and credits on accounts?
Debits increase accounts on the left side, credits increase accounts on the right side.
What is the process of journalizing?
The process of recording accounting transactions in a journal with debits and credits in chronological order.
Q: What is recorded in a general journal?
Journal entries for each accounting transaction, including the date, account titles, dollar amount, and an explanation.
What is a source document?
A document that provides evidence of a business transaction, such as a receipt, supplier invoice, or bank check.
What is the purpose of the general ledger?
To organize transactions by accounts (T-account) and make it easier to determine the balance of each account.
What is posting in accounting?
The process of transferring debit and credit information from the general journal to the general ledger.
What is a T-account used for?
To show the effect transactions have on an account. Entries on the left are debits, and entries on the right are credits.
What is the purpose of a trial balance?
To ensure that debits equal credits and to help in preparing financial statements, but it does not guarantee error-free data.
–> A listing of all accounts from the general ledger (T-accounts) with their ending debit or credit balance at the end of the period
* Unadjusted Trial Balance
* Adjusted Trial Balance
* Closing Trial Balance
What is a compound journal entry?
A journal entry that involves more than two accounts, with the sum of the debit amounts always equal to the sum of the credit amounts.
How do accounting transactions differ from other business activities?
counting transactions are economic events that affect the company’s accounting equation, while some business activities do not involve accounting transactions.
Trial Balance Errors
Errors could include unrecorded transactions, journal entries not posted, journal entries posted in wrong amounts, or posted to the wrong accounts.
