Chapter 3: Study Guide Material

Question 1

Every Transaction Must Affect How Many Accounts?

Answer 1

-at 2 least accounts

Question 2

Journal Entries Points

Answer 2

• discloses the complete effect of the transaction in chronological order
• must always keep the accounting equation in balance
• Duality effects- each transaction affects at least two accounts
• written in debit credit form

Question 3

Measurements Issues Associated with Recording Transactions?

Answer 3

• recognition issue
• valuation issue
• classifiction

Question 4

Accounting Cycle

Answer 4

1) Source document is prepared (by non-accountant)
2) Account analyzes the transaction (the accounting event)

3) Records Business Transaction

Question 5

Part 2 Of Accounting Cycle

Answer 5

1) Journal Entries into the journal
2) Post to ledger (final book of entry)
3) Prepare Trial Balance
4) Journalize and post adjusting entries
5) Prepare financial statements
6) Journalize and post closing entries

Question 6

What does trial balance list?

Answer 6

all of the individual accounts with their ending debit or credit balance

Question 7

Issues Related to Determining Net Income?

Answer 7

• Time Period
• Measurement
• Revenue Recognition Policy- defines when revenues are recorded…can be found in footnotes of income statement
• Expense Recognition Principle- all the relevant expenses can be recorded in the same period as the revenues that were generated
• Peripheral Transactions - gains/losses on sales of assets and interest revenue/interest expenses
• income tax expense is often reported separately for corporations

Question 8

GAAP AND IFRS who uses historical cost and fair value more?

Answer 8

-GAAP uses historical cost more

IFRS uses more fair value assets

Question 9

Impediments to IFRS

Answer 9

• training
• educating
• changes to accounting systems
• legal issues
• consistency
• corporate governance

Question 10

Subsidiary Ledger

Answer 10

• provide breakdown of a larger general account
• all the subsidiary ledgers should equal the total of the general ledger
• subsidiary ledgers have a breakdown for each customer and the breakdowns of the customer’s activities

Question 11

What does a general ledger have?

Answer 11

the overall total

Question 12

Balances in the Ledger end up on what 3 financial statements?

Answer 12

-Balance sheet, Income Statement, or Statement of Retained Earnings

Question 13

What do ledgers summarize?

Answer 13

all the transactions that affect each and every account

Question 14

conservatism

Answer 14

states where there are choices about the value of assets and liabilities, do not overstate assets or liabilities or revenues

-do not understate liabilities or expenses

Question 15

What are the requirements to be a recorded transaction?

Answer 15

• have to quantifiable
• based on past transaction
• written in debit-credit form

Question 16

what is stockholders’ equity also called?

Answer 16

net assets

assets minus liability