Chapter 3

Question 1

accounting Information System

Answer 1

• collects and processes transactions
• communicates financial info to dicision makers
• most businesses use computerized accounting system, sometimes referred to as electronic data

Question 2

factors that shape the Accounting Info System

Answer 2

o	nature of the company’s business
o	types of transactions
o	company size
o	the volume of data
o	information demands of management and others.

Question 3

accounting transactions

Answer 3

 economic events that require recording in the financial statements
 occur when assets, liabilities, or stockholders’ equity items change as a result of some economic event

Question 4

transaction analysis

Answer 4

• the process of identifying the specific effects of economic events on the accounting equation
• The accounting equation must always balance (assets = liabilities + equity)
• Each transaction has a dual effect on the equation

Question 5

account

Answer 5

an individual accounting record of increases and decreases in a specific asset, liability, or stockholder’s equity item

Question 6

three parts of account

Answer 6

(1) the title of the account, (2) a left or debit side, and (3) a right or a credit side.
 In its simplest form it is referred to as a T account because the alignment of the parts of the account resembles the letter T.

Question 7

debits and credits

Answer 7

the term debit means left, and credit means right; THEY DON’T MEAN INCREASE OR DECREASE)

Question 8

debit

Answer 8

abbreviated Dr.

Question 9

credit

Answer 9

and credit is abbreviated Cr

Question 10

debiting

Answer 10

d

Question 11

crediting

Answer 11

d

Question 12

debit balance

Answer 12

d

Question 13

credit balance

Answer 13

d

Question 14

debit and credit procedures

Answer 14

Each transaction must affect two or more accounts to keep the basic accounting equation in balance.

Question 15

double entry system

Answer 15

the equality of debits and credits keeps the equation balanced

Question 16

debits for assets and liabilities increase…

Answer 16

expenses, assets, dividends

Question 17

credits for assets and liabilties increase…

Answer 17

liabilities, equity, revenue

Question 18

debits for stockholder’s equity increase…

Answer 18

d

Question 19

credits for stockholder’s equity increase…

Answer 19

d

Question 20

The Journal

Answer 20

Transactions are initially recorded in chronological order in journals before they are transferred to the accounts.
 The journal shows the debit and credit effects on specific accounts for each transaction.

Question 21

the journal’s contribution to recording process

Answer 21

○ The journal discloses in one place the complete effect of a transaction.
○ The journal provides a chronological record of transactions.
○ The journal helps prevent or locate errors because the debit and credit
amounts for each entry can be readily compared.

Question 22

The Ledger

Answer 22

The entire group of accounts maintained by a company is referred to as the ledger.
 The general ledger contains all of the asset, liability and stockholders’ equity accounts.
 Information in the ledger provides management with the balances in various accounts.

Question 23

Charts of account

Answer 23

Is a list of the accounts used by a company. They are typically listed in the following order: assets, liabilities, stockholders’ equity, revenues, and expenses.

Question 24

Posting*** (on test)

Answer 24

the process of transferring journal entries to the ledger accounts.
 Posting accumulates the effects of journal transactions in the individual ledger accounts. It involves these steps.

Question 25

trial balance

Answer 25

list accounts and their balances on a specific date.The primary purpose of the trial balance is to prove the mathematical equality of debits and credits after posting.
 uncovers errors in journalizing and posting.
 is useful in the preparation of financial statements.
**proves that debits = credits

Question 26

how is trial balance limited

Answer 26

it will balance but not uncover errors when:
o A transaction is not journalized.
o A correct journal entry is not posted.
o A journal entry is posted twice,
o Incorrect accounts are used in journalizing or posting, or
o Offsetting errors are made in recording the amount of a transaction.