Chapter 2 (Recording Transactions) Flashcards
Accounting Cycle = a sequence of activities undertaken by accountants to accumulate and report the _________ information of a business.
- Five Steps of an accounting cycle: ARARC (_______, ______, ______, ______, _____)
- A business ________ and _______ financial transactions _____ during the accounting period.
- The annual accounting period is known as the ______ year. Businesses with fiscal year-ends on December 31 are said to be on a ________ year.
financial
Analyze, record, adjust, report, close
analyzes, records, daily
fiscal, calendar
Analyzing Transactions
- The first step in the accounting cycle (_______), is to determine what information (if any) must be recorded in a company’s accounting records.
- An event that affects any of the elements of the accounting equation (______, ___________, or _____________’ ______) must be recorded in a company’s accounting records.
- double-entry accounting: an accounting transaction affects at least ___ elements of the accounting equation, so that the equation always remains in balance.
- Prepaid assets (such as prepaid rent), are also called prepaid ________.
analyze
assets, liabilities, stockholders’ equity
two
expenses
Analyzing Transactions Continued
- Credit allows businesses to pay for goods or services at a _____ date. When credit is used to purchase goods or services, the purchase is said to be made on _______ (such as accounts receivable).
- Unearned Revenue (also called deferred revenue): recognized as a _________ because the company accepted payment for goods or services that have not yet been provided. Once a company performs these services, revenue will be recognized.
- When providing services for cash and on account (on credit), assets will increase, as will ________ ________ to balance the accounting equation.
later, account
liability
retained earnings
Analyzing Transactions Continued
- Paying an employee wages will _________ cash, and retained earnings (b/c it is an ________)
- Accounts Receivable represent the amount still ____ to a company for services that were previously performed on account (credit) but remain unpaid.
decrease, expense
owed
The Account System
- Account: individual record of the increases and decreases in a specific _____, _________, or ____________’ ______ item (ex. cash, accounts receivable, etc.)
- A chart of accounts is a ____ of the titles of all accounts in a business’s accounting system.
asset, liability, stockholders’ equity
list
System of Debits and Credits
- T-Account: list account title (e.g. cash) and identifies which side of the account, debit (____ side) or credit (_____ side), is used to increase the account and which side decreases the account.
- Assets will _________ with debit entries, but will ________ with credit entries.
- Both liabilities and stockholders’ equity will _________ with debit entries, but will ________ with credit entries.
- Normal Balance: side on which increases to the account are recorded (typically, _____ accounts have debit balances, while liability and stockholders’ equity accounts have ______ balances.)
left, right
increase, decrease
decrease, increase
asset, credit
System of Debits and Credits Continued
- The pattern of increases and decreases in revenue, expense, and dividends accounts derives from their relation to retained earnings.
- Revenues ________ earnings, so just like the retained earnings account, revenue accounts ________ with credit entries and ________ with debit entries.
- The opposite is true for expense and dividend accounts
increase, increase, decrease
Recording Transactions
- The initial step in the analyzing and recording process is to identify evidence of a business transaction, usually coming in the form of a ______ document.
- A journal (also referred to as a company’s “_____”) is a tabular record in which a business’s activities are reflected in terms of debits and credits and recorded in chronological order.
- All journal entries are posted to the general ______. While the general journal organizes transactions in chronological order, the general ______ organizes transactions by account. The process of transferring the debit and credit information from the general journal to the general ______ is called _______.
source
“books”
ledger, posting
In Class Notes
- Accrual Accounting: revenue is recognized when ______, expenses are recognized when ________
- Cash Basis Accounting: revenue is recognized when cash is ________, expenses are recognized when cash is ____
- Formula: Beginning Retained Earnings + __ - ___ = Ending Retained Earnings
- Five Steps in the Accounting Cycle: Analyze (determine if a ___________ took place), Record (identify the ________ affected), Adjust (classify each account affected), Report (identify the direction and amount), Close (ensure the accounting equation is _________)
earned, incurred
received, paid
Retained Earnings + NI (net income) - DIV (dividends)
transaction, accounts, balanced
In Class Notes Continued
- T-Accounts: visual form of an _______ in the company’s general ledger, used to capture the effects of transactions
- Journal Entries: each journal entry includes at least ___ effects that offset each other (for transactions, debits must equal credits)
- Trial Balance: list of all general ledger accounts, used to verify that total ______ = total _______ (starting point to create financial statements)
account
two
total debits = total credits
