Chapter 3

Question 1

Accounting info system

Answer 1

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

Question 2

Accounting transactions

Answer 2

Economic events that require recording in the financial statements

Question 3

Summary of Transactions

Answer 3

1. Each transaction is analyzed in terms of its effect on assets, liabilities, and stockholders equity
2. The two sides of the equation must always be equal
3. The cause of each change in stockholders’ equity must be indicated

Question 4

Account

Answer 4

An individual account record of increases and decreases in a specific asset, liability, stockholders’ equity, revenue, or expense item

Question 5

Components of a t-account

Answer 5

Title of the account
A left, or debit side
A right, or credit side

Question 6

Double entry system

Answer 6

The 2-sided effect of each transaction is recorded in appropriate accounts

Question 7

Debits increase__________ and decrease___________

Answer 7

Assets; liabilities

Question 8

Credits decrease____________ and increase____________

Answer 8

Assets; liabilities

Question 9

Asset accounts normally show ________ balances

Answer 9

Debit

Question 10

Liability accounts normally show __________ balances

Answer 10

Credit

Question 11

Common stock has a normal _________ balance for _________

Answer 11

Credit; increase

Question 12

Assets have a normal_______balance for ________

Answer 12

Debit; increase

Question 13

Liabilities have a normal __________ balance for_________

Answer 13

Credit; increase

Question 14

Retained earnings have a normal _________ balance for________

Answer 14

Credit; increase

Question 15

Dividends have a normal _________ balance for _________

Answer 15

Debit; increase

Question 16

Debits _________ revenue and _______ expenses. Therefore expenses have a normal _________ balance for ________

Answer 16

Decrease;increase;debit;increase

Question 17

Credits _________ revenue and _________ expenses. Therefore revenue has a normal ________balance for ________

Answer 17

Increase;decrease;credit;increase

Question 18

3 steps of the recording process

Answer 18

1. Analyze each transaction in terms of its effect on the accounts
2. Enter the transaction information in a journal
3. Transfer the journal information to the appropriate accounts in the ledger

Question 19

Basic structure of a journal

Answer 19

Keep the equation balanced
Debits come first
Credits indented in

Question 20

Ledger

Answer 20

The entire group of accounts maintained by a company-it provides the balance in each of the accounts as well as keeps track of changes in these balances

Question 21

General ledger

Answer 21

Contains all the asset, liability, stockholders equity, revenue, and expense accounts

Question 22

Posting

Answer 22

Procedure of transferring journal entry amounts to ledger accounts

Question 23

Trial balance

Answer 23

Lists accounts and their balances at a given time -
Usually prepared at the end of an accounting period-
Proves the mathematical equality of debits and credits
Does NOT prove that all transactions have been recorded or that the ledger is correct

Question 24

Periodicity assumption

Answer 24

Divides the economic life of a business into artificial time periods
Generally a month, quarter, or year (fiscal year)

Question 25

Revenue recognition principle

Answer 25

Requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied

Question 26

Expense recognition principle

Answer 26

Efforts (expenses) must be matched with results (revenues)

Question 27

normal debit balance accountss

Answer 27

dividends expenses assets