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accounting > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

Accounting infomation system

A

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

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2
Q

Accounting transactions

A

Economic events that require recording in the financial statements

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

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3
Q

Transaction analysis

A

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

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4
Q

Unearned service revenue

A

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

ex. airlines

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5
Q

Revenue’s effect on stockholder’s equity

A

Revenue increases stockholder’s equity

adds cash to assets

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

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6
Q

Services on acount

A

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

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7
Q

Expenses effect on stockholder’s equity

A

Decreases revenue so decreases total stockholder’s equity

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8
Q

Prepaid expenses or prepayments

A

Payments of expenses that will benefit more than one accounting period

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9
Q

Hiring of new employees

A

Does not affect accounting equation until employees are paid

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10
Q

Dividends (accounting equation relevance)

A

A reduction of stockholder’s equity but not an expense

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11
Q

Fannie Mae troubles

A

Announced a series or large accounting errors

mortgage company market depends on them

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12
Q

Bank One Corporation

A

Fined 1.8 billion dollars because of unreliable accounting

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13
Q

Waste Management Company

A

10,000 employees received error pay slips

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14
Q

Account

A

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

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15
Q

Three parts of account

A

Title of account

Left or debit side

Right or credit side

= T account

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16
Q

Debit (Dr.)

A

Indicates the left side of an account

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17
Q

Credit (Cr.)

A

Indicates the right side

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18
Q

Debiting

A

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

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19
Q

Crediting

A

Making an entry on the ride side of the account

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20
Q

Debit balance

A

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

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21
Q

Credit balance

A

Shows a credit balance if the credit amounts exceed the debits

22
Q

For each transaction

A

Debits must equal credits

23
Q

Double-entry system

A

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

24
Q

International Note: double-entry system

A

Europeans rely less on historical cost and more on fair value

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

25
Q

Debits include:

A

increase in assets

Decrease in liabilities

26
Q

Credits include:

A

Decrease in assets

Increase in liabilities

27
Q

Asset accounts…

A

Normally show debit balances

28
Q

Liability accounts

A

Normally show credit balances

29
Q

Retained earings is…

A

Decreased by debits

increased by credits

30
Q

Dividends…

A

recoreded in debits

dividends account normally has a debit balance

31
Q

Revenues and expenses

A

Debits: decrease venue, increase expenses

Credits: increase revenue. decrease expenses

32
Q

Revenue accounts show

A

Credit balances

33
Q

Expense accounts show

A

Debit balances

34
Q

Source document

A

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

35
Q

Journals

A

Transactions are intitially recorded in chronological order in journals before transferred to accounts

shows debit/credit effects

36
Q

General journal

A

the most basic form of a journal

every company has one

37
Q

Three contributions of a journal

A
  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
38
Q

Journalizing

A

Entering trnsaction data in the journal

39
Q

A complete journal entry

A
  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

40
Q

Ethics note: International Outsourcing Services

A

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)

41
Q

Ledger

A

The entired group of accounts maintained by a company

Keeps in once place all the information about changes in specific account balances

42
Q

General ledger

A

Contains all the assets, liabilities, stockholders’ equity, revenue, and expense accounts

Every company has one

43
Q

Chart of accounts

A

A list of all accounts a company has

44
Q

Posting

A

The procedure of transferring journal entry amounts to ledger accounts

45
Q

Purpose of transaction analysis

A

First- identify the type of account involved

Then - determine whether a debit or a credit to the account is required

46
Q

Trial balance

A

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

47
Q

Preparing a trial balance

A
  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
48
Q

Order of trial balance

A

Assets

Liabilities

Stockholder’s Equity

Revenues

Expenses

49
Q

Error

A
50
Q

Irregularity

A

An intentional misstatement

Viewed as unethical

51
Q

Order of trial balance

A

order in which they appear on the ledger

accounting (31 decks)

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