chapter 3 - Double-Entry Accounting and the Accounting Cycle

Question 1

General ledger (G/L)

Answer 1

The financial records containing details on a company’s asset, liability, and shareholders’ equity, revenue, and expense accounts.

Question 2

General ledger account

Answer 2

An account in the general ledger.

Question 3

Chart of accounts

Answer 3

A listing of the names of the accounts used in a particular accounting system.

Question 4

Permanent accounts

Answer 4

Accounts whose balances carry over from one period to the next. All statement of financial position accounts are permanent accounts

Question 5

Temporary accounts

Answer 5

Accounts used to keep track of information temporarily during each accounting period. The balances in these accounts are eventually transferred to a permanent account (Retained Earnings) at the end of the period by making closing entries.

Question 6

General journal

Answer 6

A chronological listing of all the events that are recorded in a company’s accounting system

Question 7

Journal entry

Answer 7

An entry made in the general journal to record a transaction or event

Question 8

Posting

Answer 8

The process of transferring the information from the journal entries in the general journal to the ledger accounts in the general ledger

Question 9

Trial balance

Answer 9

A listing of all the general ledger accounts and their balances. Used to check whether the total of the debit balances is equal to the total of the credit balances.

Question 10

Adjusting entries

Answer 10

Journal entries made at the end of the accounting period to record an event or transaction that was not recorded during the period. Events or transactions that are not signalled in any other way are recorded through adjusting entries. The entries do not involve the Cash account.

• classified into two broad categories: accruals and deferrals (see Key Points).

Question 11

Accumulated Depreciation account

Answer 11

A contra-asset account whose normal balance is a credit.

Question 12

Contra-asset account

Answer 12

An account used to record reductions in a related asset account. An example is accumulated depreciation.

• Its normal balance is a credit.
• The carrying amount of property, plant, and equipment is its cost less accumulated depreciation.

Question 13

Adjusted trial balance

Answer 13

A listing of the accounts and their balances after the adjusting entries have been made, but before the closing entries have been made

Question 14

in what order should you prepare the financial statements

Answer 14

• statement of income
• change in equity
• financial position
• cash flows

Question 15

Closing entries

Answer 15

Entries made at the end of the accounting period to transfer the balances from the temporary revenue, expense, and dividend declared accounts into the retained earnings account. Resets the balance of all temporary accounts to zero

Question 16

in closing entries, what are the 4 accounts that you should close and how do you close them

Answer 16

• Close all revenue accounts to the Income Summary account.
• Close all expense accounts to the Income Summary account.
• Close the Income Summary account to Retained Earnings.
• Close the Dividends Declared account to Retained Earnings.

Question 17

Income Summary account

Answer 17

An optional temporary account that is often used when closing the books to summarize all the temporary statement of income accounts (revenues and expenses) before transferring the net income to retained earnings.

accounts in incom summary:
- revenues
- expenses
- gives net income