Chapter 2

Question 1

What are the 8 steps of the accounting cycle?

Answer 1

1. analyze and journalize transactions
2. post transactions into the general ledger
3. prepare and unadjusted trial balance
4. journalize and post adjusting entries
5. prepare an adjusted trial balance
6. prepare financial statements
7. journalize & post closing entries
8. prepare a post closing trial balance

Question 2

List some common ASSET accounts

Answer 2

• cash
• accounts receivable
• inventory
• notes receivable
• prepaid expense
• land
• building
• equipment, furniture, fixtures

Question 3

What is a current asset and what is an example of a current asset?

Answer 3

expected to be converted to cash, sold, or consumed within a year/ operating cycle
- eg. cash, inventory, accounts receivable, inventory

Question 4

What is a long term asset and what is an example of a long term asset?

Answer 4

those the business will hold for more than 1 year or longer than the operating cycle
- eg. property, equipment, patents/ copyrights

Question 5

List some common LIABILITY accounts

Answer 5

• accounts payable
• unearned revenue
• notes payable
• accrued liabilities

Question 6

List some common SHAREHOLDERS’ EQUITY accounts

Answer 6

• share capital/ common shares
• retained earnings
• revenues
• expenses
• dividends

Question 7

ADE - assets, dividends, expenses

• if these accounts increase, debit them
• if they decrease, credit them

Answer 7

LCR - liabilities, common shares, revenue

• if these accounts increase, credit them
• if they decrease, debit them

Question 8

Define normal balance

Answer 8

the balance that appears on the side of an account where increases are recorded; the expected balance of the account