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BUS 214: Financial Accounting > Chapter 2: Transaction Analysis > Flashcards

Chapter 2: Transaction Analysis Flashcards

1
Q

Transaction

A

Is any event that has a financial impact on the business and can be measured reliably

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2
Q

Cash

A

Means money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks

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3
Q

Accounts Receivable

A

Many companies sell goods and services and receives a promise for future collections of cash

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4
Q

Notes Receivable

A

Is similar to accounts receivable but a note receivable is more binding because the customer signed the note

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5
Q

Inventory

A

Often times the most important asset. Other titles may be merchandise and merchandise inventory

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6
Q

Prepaid expenses

A

Companies pay certain expenses in advance such as insurance and rent. Is an asset because the payment provides a future benefit

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7
Q

Land

A

Shows the cost of land a company uses in its operations

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8
Q

Buildings

A

Cost of office buildings, manufacturing plants, and others

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9
Q

Equipment, Furniture, and Fixtures

A

There are separate asset accounts for each type of equipment including manufacturing equipment and office equipment

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10
Q

Accounts Payable

A

A company’s promise to pay a debt arising from a credit purchase of inventory or from a utility bill

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11
Q

Notes Payable

A

Includes amounts a company must pay because they signed notes to pay a future amount

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12
Q

Accrued Liabilities

A

Is a liability for an expense that has not yet been paid.

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13
Q

Examples of Accrued Liabilities

A

Interest payable, income tax payable, salary payable

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14
Q

Common Stock

A

Shows the owners investment in a corporation. All corporations have common stock

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15
Q

Retained Earnings

A

Shows the amount of cumulative net income earned over a company’s lifetime minus net losses and dividends

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16
Q

Dividends

A

Are optional and are declared by the board of directors. When declared it represents a decrease in retained earnings

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17
Q

Revenues

A

This increase in stockholder’s equity from delivering goods or services to customers.

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18
Q

Examples of Revenue

A

Sales revenue, service revenue, interest revenue

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19
Q

Expenses

A

The cost of operating a business. Decreases stockholder’s equity. A business records a separate account for each type of expense

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20
Q

T-Account

A

Way of keeping track of debits and credits

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21
Q

Debit

A

The left side of the account

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22
Q

Credit

A

The right side of the account

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23
Q

Normal Balance of Assets

A

Debit

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24
Q

Normal Balance of Liabilities

A

Credit

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25
Q

Normal Balance of Stockholder’s Equity

A

Credit

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26
Q

Normal Balance of Common Stock

A

Credit

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27
Q

Normal Balance of Retained Earnings

A

Credit

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28
Q

Normal Balance of Dividends

A

Debit

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29
Q

Normal Balance of Revenues

A

Credit

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30
Q

Normal Balance of Expenses

A

Debit

31
Q

Journal

A

Accountants use a chronological record of transactions also known as the book of original entry

32
Q

First Step of the Journalizing Process

A

Specify each account affected by the transaction and classify each account by type

33
Q

Second Step of Journalizing Process

A

Determine whether each account is increased or decreased by the transaction. Use the rules of debit and credit to increase or decrease each account

34
Q

Third Step of Journalizing Process

A

Record the transaction in the journal, including a brief explanation

35
Q

Ledger

A

Is a grouping of all the t-accounts with their balances

36
Q

Posting

A

Entering a transaction by copying data into the ledger

37
Q

Trial Balance

A

Lists all accounts with their balances. Assets first, then liabilities, and stockholder’s equity. Shows whether total debits equal total credits

38
Q

What is the purpose of the trial balance?

A

Facilitates the preparation of financial statements

39
Q

First Step of Correcting Accounting Errors

A

Search the records for a missing account. Trace each account back and forth from the journal to the ledger. A transaction may have been recorded incorrectly

40
Q

Second step of correcting accounting errors

A

Divide out the balance amount by 2. A misassigned transaction doubles the error

41
Q

Third step of correcting accounting errors

A

Divide the balance amount by 9. If the result is an integer it may either be a slide or a transposition

42
Q

Slide

A

Writing $400 as $40. The accounts would be out of balance by $360. Divide by 9 and scan trial balance for similar number

43
Q

Transposition

A

Writing $1200 as $2100. The accounts would be out of balance by $900. Divide by 9 and scan the trial balance for a similar number

44
Q

Chart of Accounts

A

A list to organize all their accounts and account numbers

45
Q

What type of transaction would increase one asset and decrease another?

A

Buying land with cash

46
Q

What type of transaction would decrease an asset and decrease owner’s equity?

A

Payment of dividends to owners

47
Q

What type of transaction would decrease an asset and decrease a liability?

A

Paying a liability

48
Q

What type of transaction would increase an asset and increase owner’s equity?

A

Issuing stock

49
Q

What type of transaction would increase an asset and increase a liability?

A

Borrowing money

50
Q

Record Journal Entry. Borrowed $31,000 from the bank signing a note payable

A

Debit cash for $31,000 and credit notes payable for $31,000

51
Q

Record Journal Entry. Performed service for clients on account totaling $8,900.

A

Debit Accounts Receivable for $8,900 and credit service revenue for $8,900.

52
Q

Record journal entry. Received $5,600 cash on account from clients.

A

Debit cash for $5,600 and credited accounts receivable for $5,600

53
Q

Record journal entry. Received utility bill of $900, an account payable in April.

A

Debit utilities expense for $900 and credit accounts payable for $900

54
Q

Record journal entry. Paid monthly salary of $2,600 to employee.

A

Debit salary expense for $2,600 and credit cash for $2,600

55
Q

Record 2 separate journal entries. Purchased $1700 of supplies on account. Paid $425 on account

A
  1. Debit supplies for $1700 and credit accounts payable for $1700.
  2. Debit accounts payable for $425 and credit cash for $425.
56
Q

Record 2 journal entries. Expect to collect $4700 next month. Collect $3000.

A
  1. Debit accounts receivable for $4700 and credit service revenue for $4700.
  2. Debit cash $3000 and credit accounts receivable for $3000
57
Q

What is the impact on accounts when a company receives cash on account?

A

No effect because one asset is increased and another asset is decreased

58
Q

What is the impact on accounts when a CEO purchases a tv using personal funds?

A

No effect because personal assets were used

59
Q

What is the impact on accounts when a company sells land and receives cash for the sale?

A

No effect because one asset is increased and another one is decreased

60
Q

What is the impact on accounts when cash is borrowed from the bank?

A

This transaction increases cash and increases notes payable

61
Q

What is the impact on accounts when cash is used to purchase land?

A

No effect because one asset is increased and another one is decreased

62
Q

What is the impact on accounts when cash is received for issuing stock?

A

Cash is increased and stockholder’s equity is also increased

63
Q

What is the impact on accounts when cash is paid for accounts payable?

A

Cash is decreased and accounts payable is also decreased

64
Q

What is the impact on accounts when equipment is sold?

A

No effect because one asset increases and another one decreases

65
Q

What is the impact on accounts when inventory is purchased?

A

No effect because one asset is increased and another asset is decreased

66
Q

What is the impact on accounts when dividends are paid?

A

Assets are decreased and stockholder’s equity is decreased

67
Q

Record journal entry. Issued stock for $39,000

A

Debit cash for $39,000 and credit common stock for $39,000

68
Q

Record journal entry. Purchased land for $29,000

A

Debit land for $29,000 and credit cash for $29,000

69
Q

Record journal entry. Purchased supplies on account for $1700

A

Debit supplies for $1700 and credit accounts payable for $1700

70
Q

Record journal entry. Earned $7600 in service revenue earning half in cash immediately

A

Debit cash for $3800 and accounts receivable for $3800 and credit service revenue for $7600

71
Q

Record journal entry. A company incurred month end expenses of salary expense of $1300, rent expense of $700, and utilities expense of $600.

A

Debit salary expense, rent expense, and utilities expense for a total of $2500 and credit cash for $2500

72
Q

Record journal entry. Sold supplies to another company for $700

A

Debit cash for $700 and credit supplies for $700

73
Q

Record journal entry. Borrowed cash from bank for $12,000

A

Debit cash for $12,000 and credit notes payable for $12,000

74
Q

Record journal entry. Paid $800 cash to pay off accounts payable

A

Debit accounts payable for $800 and credit cash for $800

BUS 214: Financial Accounting (3 decks)

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