Chapter 3 Flashcards
Define the “Four-Step Accounting Cycle”
- Record transactions in the accounting records
- Prepare accounting adjustments (which recognize a number ofevents that have occurred but have not yet been recorded
- Prepare financial statements
- Close the books (in anticipation of the start of a new accounting cycle
Review the Financial Statement Effects Template
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Describe T Accounts
Used to reflect increases and decreases to individual accounts
- Recorded (journalized)
- Accounting books (general ledger)
- Posting transactions to accounts
Right side of a liability and an equity T-account records increases (the normal balance side) and the left side records decreases
What is double entry accounting
How we record entries in the journal and T-accounts.
In the journal, debits go first, followed by credits
Debits must equal credits
Define Accrual Acccounting
Recognizing revenue when products and services are delivered at an amount expected to be received and recording expenses when incurred.
Required under GAAP
What are the Four Types of Accounting Adjustments
- Prepaid expenses - advance cash payments that will ultimately become expenses
- Unearned revenues - cash received from customers before any services or goods are provided
- Accrued expenses - expenses incurred and recognized on the income statement even though they are not yet paid in cash
- Accrued revenues - revenues earned and recognized on the income statement even though cash is not yet received
What is the Order of Financial Statement Preparation
- Prepare the IS
- Prepare the BS using the updated retained earning account w/ the remaining BS accounts
- Prepare the statement of stockholders’ equity
- Prepare the statement of cash flows using information from the cash account
Balance Sheet accounts are called…
permanent accounts
The closing process referrs to…
“zeroing out” the temporary accounts by transferring the ir ending balances to retained earnings
Review the end of chapter problems for Chapter
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