Chapter 3 Flashcards
What is a business transaction?
a financial event that causes a change in financial position
What is a source document?
A source document is the original record of a transaction that provides the accounting department with the information it needs related to the transaction
Give examples of source documents.
Store receipts, hydro bills, credit card slips, etc,
What happens to source documents after accounting entry has been recorded?
They are filed for future reference.
What is the objectivity principle?
Accounting will be recorded on the basis of objective evidence. Transactions recorded based on facts.
Explain why the equation analysis sheet is necessary.
It is necessary because it helps you analyze and record changes in a company’s financial position.
What is transferred from the from the balance sheet to the equation analysis sheet?
Assets, liabilities, and capital.
How do you know if the changes for a transaction recorded on an equation analysis sheet are balanced?
After each transaction is record, new column totals are calculated and are balanced according to A=L+OE. If totals balance, each transaction was balanced.
Does a transaction always change both sides of the accounting equation?
Not always. One asset could increase, one could decrease, and liabilities and equity are unaffected.
What four steps should be used to analyze the changes caused by a transaction?
Record the changes. Determine if equity has changed. Make sure at least two of the individual items have changed. Make sure equation is still balanced.
What is a good clue as to whether capital has increased or decreased?
If the company is better off or worse as a result of the transaction.
What do good accountants rely on besides their memory to keep track of the business’s finances?
Common sense, clear thinking, thorough understanding of accounting theory.
Why must accounting be done accurately?
To ensure financial records are correct and reliable.
