Chapter 3

Question 1

What does the accounting information system do?

Answer 1

• Collects and processes transaction data

- Communicates financial information to decision makers

Question 2

What are transactions?

Answer 2

These are events that must be recorded in a financial statement

Question 3

What is transaction analysis?

Answer 3

The process of considering the transaction or event that has taken place and identifying how the transaction is going to impact the accounting equation

Question 4

What is the main criteria of requiring to record transactions?

Answer 4

If the event taking place changes the assets, liabilities, or stockholder’s equity

Question 5

What is the equation for stockholder’s equity?

Answer 5

common stock + retained earnings

Question 6

What is the equation for retained earnings?

Answer 6

revenues - expenses - dividends

Question 7

What is an account?

Answer 7

An individual accounting record of increases and decreases in a specific asset, liability, or SE item

Question 8

What does a basic account consist of?

Answer 8

1) The title of the account
2) A left or “debit” side
3) A right or “credit” side

Question 9

What is a double entry system?

Answer 9

Equal debits and credits are made in the accounts for each transaction

Question 10

Where is the normal balance for common stock?

Answer 10

Credit

Question 11

Where is the normal balance for revenues?

Answer 11

Credit

Question 12

Where is the normal balance for assets?

Answer 12

Debit

Question 13

Where is the normal balance for dividends?

Answer 13

Debit

Question 14

Where is the normal balance for expenses?

Answer 14

Debit

Question 15

Where is the normal balance for liabilities?

Answer 15

Credit

Question 16

What are the 3 steps inthe recording process?

Answer 16

1) Analyze each transactions
2) Enter transactions in a journal
3) Transfer journal information to ledger accounts

Question 17

What does a journal do to contribute to the recording process?

Answer 17

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

Question 18

What is journalizing?

Answer 18

Entering transaction data in the journal

Question 19

What does a complete entry consist of?

Answer 19

1) The data of the transaction
2) The accounts and amounts to be debited and credited
3) A brief explanation of the transaction

Question 20

What is a ledger?

Answer 20

The entire group of accounts maintained by a company

Question 21

What is the purpose of the ledger?

Answer 21

Provided management with the balances in various accounts

Question 22

What is posting?

Answer 22

Transferring journal entries to the ledger accounts

Question 23

What is a trial balance?

Answer 23

A list of accounts and their balances at a given time

Question 24

When can a trial balance NOT uncover errors?

Answer 24

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