Chapter 2 Accounting Information System and Income Measurement Flashcards
Accounting information system … a -
a- should be able to provide relevant and reliable information useful for decision making at any point in time
Accounting information system … b -
b. Collects and processes transaction data and disseminates the information to interested parties through financial statements
accounting information system … c-
c. Transactions - events that are reasonably measurable and change financial position …. external transactions such as sales, purchases and loans and international transactions such as depreciation and amortization
accounting information systems … d-
d- are recorded in accounts with journal entries aka real accounts and nominal accounts
What should the recording of transactions follow what accounting equation?
- Assets = Liabilities + Owners Equity
2 (activity) Revenue - Expenses = Net Income - Back to assets = liabilities + owners equity to retained earnings
Cash basis accounting :
Recognize revenue when cash is received and recognize expenses when cash is paid
Accrual basis accounting :
Recognize revenue when earned and recognize expenses when incurred
What is the accounting cycle?
- Identify Transactions
- Journalize and post to the general ledger
- Trial Balance which is the list of accounts and their balances at a given time
- Adjusting entries which is convert accounting records to the accrual basis
- Adjusted trial balance which is the trial balance + effect of adjusting entries
- Prepare financials statements
- Closing entries and zero out nominal accounts “RED”
How do you just adjust entries for deferrals?
On deferrals, you get cash first (rev, expense later)
prepaid expenses .. expenses paid in cash before they are used or consumed
unearned revenues … cash recieved before services are performed
How do you adjust entries for accruals
Cash later (rev exp first, cash later)
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
EX: You purchased supplies for $25K on account on 1/1. At 12/31 a physical count of supplies on hand reveals approximately $10K still on hand.
What adjusting journal entry will you make?
on 1/1 , Debit supplies for 25K and Credit A/P for 25K
on 12/31 , Debit supplies expense 15K and credit supplies for 15K
If you overstate assets what will happen?
You overstate net income
EX: You purchased a truck worth $100K on 3/1/xx. The truck is estimated to have a useful life of 10 years and can be sold for scrap metal at that point for $5K. What adjusting entry will be made?
Debit truck/equipment for 100k and credit cash 100k
The adjusting entry is depreciation expense of 7916.67 and accumulated depreciation of 7916.67
On 8/1/xx, purchased an insurance policy that will cover the firm against liability for the next year. The policy cost $2,400. What entrys need to be made.
8/1 debit prepaid insurance for 2.4k and credit cash for 2.4k
12/31 Adjusting entry, debit insurance expense for 1k and credit prepaid insurance for 1k
A company purchases a truck for $120,000 on 8/1/xx. They purchase the truck by placing $20,000 down
and signing a promissory note to the mfg. for the remaining $100,000. The note carries with it an 8% interest rate due annually each 1/1/xx.
➢ Face Value of Note * Annual Interest Rate * Time = Interest
debit on 8/1 equipment for 120 k and then credit cash for 20k and notes payable for 100k
aje on 12/31 is debit interest expenses for 3,3333.33 and credit int payable for 3,333.33.
A calendar year end company pays its employees on the 3rd and 18th of every month. Salaries for the
company accrue at a rate of $2,000 per day. Create the entry at 12/18, 12/31, and 1/3
12/18 debit wages expense for 36k and credit cash for 36k
aje on 12/31 debit exp for 26k and w payable 26k
1/3 debit W payable for 26k and debit w expen for 6k and credit cash for 32k
