Chapter 3 Flashcards
What does the accounting information system do?
- Collects and processes transaction data
- Communicates financial information to decision makers
What are transactions?
These are events that must be recorded in a financial statement
What is transaction analysis?
The process of considering the transaction or event that has taken place and identifying how the transaction is going to impact the accounting equation
What is the main criteria of requiring to record transactions?
If the event taking place changes the assets, liabilities, or stockholder’s equity
What is the equation for stockholder’s equity?
common stock + retained earnings
What is the equation for retained earnings?
revenues - expenses - dividends
What is an account?
An individual accounting record of increases and decreases in a specific asset, liability, or SE item
What does a basic account consist of?
1) The title of the account
2) A left or “debit” side
3) A right or “credit” side
What is a double entry system?
Equal debits and credits are made in the accounts for each transaction
Where is the normal balance for common stock?
Credit
Where is the normal balance for revenues?
Credit
Where is the normal balance for assets?
Debit
Where is the normal balance for dividends?
Debit
Where is the normal balance for expenses?
Debit
Where is the normal balance for liabilities?
Credit
What are the 3 steps inthe recording process?
1) Analyze each transactions
2) Enter transactions in a journal
3) Transfer journal information to ledger accounts
What does a journal do to contribute to the recording process?
1) It discloses in one place the complete effect of a transaction
2) It provides a chronological record of transactions
3) It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared
What is journalizing?
Entering transaction data in the journal
What does a complete entry consist of?
1) The data of the transaction
2) The accounts and amounts to be debited and credited
3) A brief explanation of the transaction
What is a ledger?
The entire group of accounts maintained by a company
What is the purpose of the ledger?
Provided management with the balances in various accounts
What is posting?
Transferring journal entries to the ledger accounts
What is a trial balance?
A list of accounts and their balances at a given time
When can a trial balance NOT uncover errors?
1) A transaction is not journalized
2) A correct journal entry is not posted
3) A journal entry is posted twice
4) Incorrect accounts are used in journalizing and posting
5) Offsetting errors are made in recording the amount of a transaction
