chapter 3 Flashcards
what is the first step in the accounting cycle?
analyze transactions so we can determine the impact on the accounting equation.
what is the accounting equation?
assets= liabilties+ shareholders equity (common shares and retained earnings) MUST ALWAYS BALANCE
how do you calculate retained earnings?
revenues- expenses- dividends
what are the two ways to analyze accounting transactions?
- basic analysis (identify the accounts impacted by a given trasnaction)
- equation analysis (demonstrate the effect each transaction has on financial statements using the accounting equation)
what is the accounting information system?
The system of collecting and processing transaction data and communicating financial information to decision-makers.
what is an accounting transaction?
An economic event that is recorded in the financial statements because it involves an exchange that affects assets, liabilities, and/or shareholders’ equity
what is an account
An individual accounting record of increases and decreases in a specific asset, liability, and/or shareholders’ equity (common shares, retained earnings, revenue, expense, and dividends declared) item.
what are the three parts to the t account aka the general ledger account?
title
left or debit side
right or credit side
what are the benefits of t accounts?
reduces recording errors, helps in dteermiong the totals of each side of the account as well as the account balance
what is the normal balance?
The side of an account used to increase the account
assets are on which side of the t account?
debt for normal account, normally have more debits thna credits
what side are liabilities on?
right side
what side is SE on?
right side
what side is revenue, dividends and expenses on?
revenue–> credit
dividends–> debit
expenses–> debit
what are the three basic steps part of the recording process
- Analyze each transaction in terms of its effect on accounts
- Record the transaction information in the general journal
- Transfer (or post) the information in the general journal to the appropriate accounts in the general ledger