chapter 3 Flashcards
What is the purpose of the accounting information system?
To collect, process, and communicate financial information.
What factors influence an accounting information system?
Type of business, size of business, amount of data, and information needs.
What are the steps in the accounting cycle?
- Analyze transactions, 2. Journalize transactions, 3. Post to General Ledger, 4. Prepare Unadjusted Trial Balance, 5. Post Adjusting Entries, 6. Prepare Adjusted Trial Balance, 7. Prepare Financial Statements, 8. Post Closing Entries, 9. Prepare Post-Closing Trial Balance.
How does a transaction affect the accounting equation?
Each transaction affects at least two parts of the equation: Assets = Liabilities + Shareholders’ Equity.
What transactions must be recorded?
Any event that impacts the accounting equation, including cash transactions and purchases or sales on account.
What is the normal balance for asset accounts?
Debit.
What is the normal balance for liability and equity accounts?
Credit.
What does DEAD stand for in accounting?
Debits increase Expenses, Assets, and Dividends.
What types of accounts increase with a credit?
Liabilities, Common Shares, Retained Earnings, and Revenues.
What is the purpose of journal entries?
To record transactions in the accounting records.
What must be true for every journal entry?
Total debits must equal total credits.
What is the purpose of posting transactions to the General Ledger?
To organize all transactions by account and determine balances for financial statements.
What is the purpose of a trial balance?
To ensure debits and credits are equal before preparing financial statements.
What order are accounts listed in the trial balance?
Assets, Liabilities, Equity, Revenues, and Expenses.
What are the limitations of a trial balance?
It does not detect missing transactions, incorrect amounts, duplicate postings, or reversed debits and credits.
What errors will a trial balance detect?
Unbalanced journal entries, incomplete postings, and posting a debit for a different amount than the credit.
