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Intermediate Accounting I :!: > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are external events?

A

External events involve an exchange between the company and another entity.

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2
Q

What are internal events?

A

Internal events do not involve an exchange transaction but do affect the company’s financial position.

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3
Q

What is the accounting equation?

A

Assets = Liabilities - Owner’s Equity

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4
Q

What is a transaction?

A

Each even, or transaction, has a dual effect on the accounting equation.

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5
Q

What is owner’s equity?

A

AKA Shareholder’s equity, is classified by source as either paid-in capital or retained earnings.

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6
Q

What is a double-entry system?

A

The double-entry system is used to process transactions.

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7
Q

What is a general ledger?

A

A general ledger is a collection of storage areas, called accounts, used to keep track of increases and decreases in financial position elements.

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8
Q

What is a T-account?

A

In the double-entry system, debit means left side of an account and credit means right side of an account?

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9
Q

Asset increases are entered on the _________ side of accounts and decreases are entered on the __________ side.

A

Debit

Credit

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10
Q

Liability and equity account increases are __________ and decreases are __________.

A

Credits

Debits

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11
Q

What are permanent accounts?

A

Permanent accounts represent the basic financial position elements of the accounting equation.

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12
Q

What are temporary accounts?

A

Temporary accounts keep track of the changes in the retained earnings component of shareholder’s equity.

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13
Q

What are the steps of the accounting processing cycle during the accounting period?

A
  1. Obtain information about external transactions from source documents.
  2. Analyze the transaction.
  3. Record the transaction in a journal.
  4. Post from the journal to the general ledger accounts.
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14
Q

What are the steps of the accounting processing cycle at the end of the accounting period?

A
  1. Prepare an unadjusted trial balance
  2. Record adjusting entries and post to the general ledger accounts
  3. Prepare an adjusted trial balance
  4. Prepare financial statements
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15
Q

What are the steps of the accounting processing cycle at the end of the year?

A
  1. Close the temporary accounts to retained earnings

10. Prepare a post-closing trial balance.

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16
Q

A __________ is an example of a special journal used to record a repetitive type of transaction.

A

sales journal

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17
Q

How do we record the borrowing of cash and signing of a note payable?

A

Debit: Cash
Credit: Note payable

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18
Q

How do we record the issuance of common stock?

A

Debit: Cash
Credit: Common Stock

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19
Q

How do we record the borrowing of cash and the signing of notes payable?

A

Debit: Cash
Credit: Notes payable

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20
Q

How do we record the payment of one year’s rent in advance?

A

Debit: Prepaid rent
Credit: Cash

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21
Q

How to record the purchase of furniture and fixtures?

A

Debit: Furniture and fixtures
Credit: Cash

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22
Q

How to record the purchase of merchandise inventory?

A

Debit: Inventory
Credit: Accounts payable

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23
Q

How do we record the purchase of supplies?

A

Debit: Supplies
Credit: Cash

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24
Q

How do we record the month’s cash sales and the cost of those sales?

A

Debit: Cash
Credit: Sales revenue

Debit: COGS
Credit: Inventory

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25
Q

How do we record a credit sales and the cost of that sale?

A

Debit: Accounts receivable
Credit: Sales revenue

Debit: COGS
Credit: Inventory

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26
Q

How do we record the receipt of rent in advance?

A

Debit: Cash
Credit: Unearned rent revenue (liability)

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27
Q

How do we record the payment of accounts payable?

A

Debit: Accounts payable
Credit: Cash

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28
Q

How do we record the payment of salaries for the first half of the month?

A

Debit: Salaries Expense
Credit: Cash

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29
Q

How do we record the receipt of cash on account?

A

Debit: Cash
Credit: Accounts receivable

30
Q

How do we record the payment of a cash dividend?

A

Debit: Retained earnings
Credit: Cash

31
Q

At any time, the total of all debit balances should __________ the total of all credit balances.

A

equal

32
Q

What are prepayments?

A

Prepayments are transactions in which the cash flow precedes expense or revenue recognition.

33
Q

What are prepaid expenses?

A

Prepaid expenses represent assets recorded when a cash disbursement creates benefits beyond the current reporting period.

34
Q

What is the adjusting entry required for a prepaid expense?

A

Debit to an expense

Credit to an asset

35
Q

How do we record the cost of supplies during the month of July?

A

Debit: Supplies expense
Credit: Supplies

36
Q

How do we record the cost of expired rent for the month of July?

A

Debit: Rent expense
Credit: Prepaid rent

37
Q

How do we record the depreciation of furniture and fixtures for the month of July?

A

Debit: Depreciation expense
Credit: Accumulated depreciation - furniture and fixtures

38
Q

What are unearned revenues?

A

Unearned revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service.

39
Q

What is the adjusting entry required when unearned revenues are earned?

A

Debit to a liability

Credit to revenue

40
Q

How do we record previously unearned rent revenue during July?

A

Debit: Unearned rent revenue
Credit: Rent revenue

41
Q

What are accruals?

A

Accruals involve transactions where the cash outflow or inflow takes place in a period subsequent to expense or revenue recognition.

42
Q

What are accrued liabilities?

A

Accrued liabilities represent liabilities recorded when an expense has been incurred prior to cash payment.

43
Q

What adjusting entry is required to record an accrued liability?

A

Debit to an expense

Credit to a liability

44
Q

How do we record accrued salaries at the end of July?

A

Debit: Salaries expense
Credit: Salaries payable

45
Q

How do we record accrued interest expense for July on notes payable?

A

Debit: Interest expense
Credit: Interest payable

46
Q

What are accrued receivables?

A

Accrued receivables involve situations when the revenue is earned in a period prior to the cash receipt.

47
Q

What is the adjusting entry required to record an accrued revenue?

A

Debit to an asset, a receivable

Credit to revenue

48
Q

How do we record accrued interest revenue earned in August on note receivable?

A

Debit: Interest receivable
Credit: Interest revenue

49
Q

Accountants often must make estimates in order to:

A

comply with the accrual accounting model

50
Q

What is an income statement?

A

The income statement is a change statement that summarizes the profit-generating transactions that caused shareholders’ equity (retained earnings) to change during the period.

51
Q

What is the purpose of the statement of comprehensive income?

A

The purpose is to report the changes in shareholder’s equity during the period that were not a result of transactions with owners.

52
Q

What is the balance sheet?

A

The balance sheet is a position statement that presents an organized list of assets, liabilities, and equity at a particular point in time.

53
Q

Balance sheet items usually are classified (grouped) according to:

A

common characteristics such as current assets and current liabilities

54
Q

What is the purpose of the statement of cash flows?

A

The purpose is to summarize the transactions that caused cash to change during the period.

55
Q

The statement of cash flows classifies transactions affecting cash into 3 categories:

A
  1. Operating activities: Inflows and outflows of cash related to transactions entering the determination of net income.
  2. Investing activities: Involve the acquisition and sale of (1) long-term assets in the business and (2) non-operating investment assets.
  3. Financing activities: Involve cash inflows and outflows from transactions with creditors and owners.
56
Q

What is the statement of shareholder’s equity?

A

The statement of shareholder’s equity discloses the sources of changes in the permanent shareholder’s equity accounts.

57
Q

How do we record the closing of revenue accounts to income summary?

A

Debit: Sales revenue and Rent revenue
Credit: Income summary

58
Q

How do we record the closing of expense accounts to income summary?

A

Debit: Income summary
Credit: COGS, Salaries expense, Supplies expense, Rent expense, Depreciation expense, Interest expense

59
Q

How do we record the closing of income summary to retained earnings?

A

Debit: Income summary
Credit: Retained earnings

60
Q

Most companies must convert from an __________ basis to a __________ basis when preparing the statement of cash flows.

A

accrual

cash

61
Q

For most external transactions, __________ journals are used to capture the dual effect of the transaction in debit/credit form.

A

special

62
Q

All credit sales are recorded in the _________ journal?

A

sales

63
Q

What is a subsidiary ledger?

A

contains a group of subsidiary accounts associated with particular general ledger control accounts

64
Q

All cash receipts are recorded in the __________ journal.

A

cash receipts

65
Q

What are economic events?

A

Economic events cause changes in the financial position of the company.

66
Q

How do we calculate sales revenue?

A

Cash collected from customers + Increase in accounts receivable

67
Q

How do we calculate cost of goods sold?

A

Cost paid for merchandise + Increase in accounts payable + Purchases during 20XX - Decrease in inventory

68
Q

How do we calculate insurance or rent expense?

A

Cash paid + Prepaid insurance/rent during 20XX - Prepaid insurance/rent (Cash paid * X/12 months)

69
Q

How do we calculate salaries expense?

A

Cash paid + Increase in salaries payable

70
Q

How do we calculate interest expense?

A

Loan from a bank * Interest rate * X/12 months

Intermediate Accounting I :!: (6 decks)

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