Chapter 3

Question 1

Accounting infomation system

Answer 1

The system of collecting and processing transaction data and communicating financial info to decision makers

factors: nature of business

Types of transactions

size of company

amount of data

Question 2

Accounting transactions

Answer 2

Economic events that require recording in the financial statements

When assets, liabilities, or stockholders’ equity change as a result of an economic event

Question 3

Transaction analysis

Answer 3

The process of identifying the specific effects of economic events on the accounting equation

Question 4

Unearned service revenue

Answer 4

A revenue that often occurs through prepay processes when a company gets money (asset) but has not yet delivered the service (liability)

ex. airlines

Question 5

Revenue’s effect on stockholder’s equity

Answer 5

Revenue increases stockholder’s equity

adds cash to assets

increase stockholder’s equity (rev-exp-div)

Question 6

Services on acount

Answer 6

Company performs service but allows it to be paid later

Company receives an asset (accounts receivable) and receives service revenue because the service has been provided

Question 7

Expenses effect on stockholder’s equity

Answer 7

Decreases revenue so decreases total stockholder’s equity

Question 8

Prepaid expenses or prepayments

Answer 8

Payments of expenses that will benefit more than one accounting period

Question 9

Hiring of new employees

Answer 9

Does not affect accounting equation until employees are paid

Question 10

Dividends (accounting equation relevance)

Answer 10

A reduction of stockholder’s equity but not an expense

Question 11

Fannie Mae troubles

Answer 11

Announced a series or large accounting errors

mortgage company market depends on them

Question 12

Bank One Corporation

Answer 12

Fined 1.8 billion dollars because of unreliable accounting

Question 13

Waste Management Company

Answer 13

10,000 employees received error pay slips

Question 14

Account

Answer 14

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

Question 15

Three parts of account

Answer 15

Title of account

Left or debit side

Right or credit side

= T account

Question 16

Debit (Dr.)

Answer 16

Indicates the left side of an account

Question 17

Credit (Cr.)

Answer 17

Indicates the right side

Question 18

Debiting

Answer 18

The act of entering an amount on the left side of an account

Question 19

Crediting

Answer 19

Making an entry on the ride side of the account

Question 20

Debit balance

Answer 20

Account shows a debit balance if the total of the debit amount exceeds the credits

Question 21

Credit balance

Answer 21

Shows a credit balance if the credit amounts exceed the debits

Question 22

For each transaction

Answer 22

Debits must equal credits

Question 23

Double-entry system

Answer 23

The two-sided effect of each transaction is recorded in appropriate accounts

Question 24

International Note: double-entry system

Answer 24

Europeans rely less on historical cost and more on fair value

However, double-entry accounting system is the basis of accounting systems worldwide

Question 25

Debits include:

Answer 25

increase in assets Decrease in liabilities

Question 26

Credits include:

Answer 26

Decrease in assets Increase in liabilities

Question 27

Asset accounts...

Answer 27

Normally show debit balances

Question 28

Liability accounts

Answer 28

Normally show credit balances

Question 29

Retained earings is...

Answer 29

Decreased by debits increased by credits

Question 30

Dividends...

Answer 30

recoreded in debits dividends account normally has a debit balance

Question 31

Revenues and expenses

Answer 31

Debits: decrease venue, increase expenses Credits: increase revenue. decrease expenses

Question 32

Revenue accounts show

Answer 32

Credit balances

Question 33

Expense accounts show

Answer 33

Debit balances

Question 34

Source document

Answer 34

Evidence of the transaction such as a sales slip, a check, a bill, or a cash register tape

Question 35

Journals

Answer 35

Transactions are intitially recorded in chronological order in journals before transferred to accounts shows debit/credit effects

Question 36

General journal

Answer 36

the most basic form of a journal every company has one

Question 37

Three contributions of a journal

Answer 37

1. Discloses in one place the complete effect of a transaction 2. Provides a chronological record of transactions 3. Helps to prevent or locate errors because the dr. and cr. amounts for each entry can be compared

Question 38

Journalizing

Answer 38

Entering trnsaction data in the journal

Question 39

A complete journal entry

Answer 39

1. date of transaction 2. accounts and amounts to be debited and credited 3. Brief explanation of the transaction \*Debit listed on first and left line, Credit on second and right \*Brief explanation of transaction

Question 40

Ethics note: International Outsourcing Services

Answer 40

International Outsourcing Services was accused of submitting fradulent documents (coupons) for Kraft Foods and PepsiCo for 250 million. Ensuring that all recorded transactions are backed up by proper business documents reduces the likelihood of fraud activity (provide evidence that transactions occured)

Question 41

Ledger

Answer 41

The entired group of accounts maintained by a company Keeps in once place all the information about changes in specific account balances

Question 42

General ledger

Answer 42

Contains all the assets, liabilities, stockholders' equity, revenue, and expense accounts Every company has one

Question 43

Chart of accounts

Answer 43

A list of all accounts a company has

Question 44

Posting

Answer 44

The procedure of transferring journal entry amounts to ledger accounts

Question 45

Purpose of transaction analysis

Answer 45

First- identify the type of account involved Then - determine whether a debit or a credit to the account is required

Question 46

Trial balance

Answer 46

Lists accounts and their balances at a given time Prepared at the end of an accounting period proves mathematical equality of debits and credits after posting useful in the prepatation of financial statements

Question 47

Preparing a trial balance

Answer 47

1. list the account titles and their balances 2. Total the debit column and total the credit column 3. Verify the equalityof the two columns

Question 48

Order of trial balance

Answer 48

Assets Liabilities Stockholder's Equity Revenues Expenses

Question 49

Error

Question 50

Irregularity

Answer 50

An intentional misstatement Viewed as unethical

Question 51

Order of trial balance

Answer 51

order in which they appear on the ledger