Chapter 4: The Bookkeeping/Accounting Process

Question 1

how does one begin the bookeeping/accounting process

Answer 1

transactions

Question 2

What is the expanded balance sheet equation

Answer 2

Assets = Liabilities + Paid-in capital + Retained earnings (beginnings of period) + revenues (during the period ) - expenses (during the period)

Question 3

how does the balance equation change if the equipment that costs $25 was purchased for cash

Answer 3

Credit Cash, Debit equipment

Question 3

how does the balance equation change if there are the firm borrows $15 from the bank?

Answer 3

Bedit to Cash, Credit notes payable

Question 4

how does the balance equation change if merchandise costing $20 was purchased for inventory; $10 cash was paid, and $10 of the cost was charged on-account

Answer 4

Credit cash, debit merchandise inventory, credit accounts payable

Question 5

how does the balance equation change if equipment that cost $7 was sold for $7; $2 was received in cash, $5 will be received later

Answer 5

debit cash, debit accounts receivable, and credit equipment

Question 6

describe adjustements

Answer 6

result in revenues and expenses being reported in the appropriate fiscal period

Question 7

what are the different categories of adjustments?

Answer 7

1. accrual: cash has not yet been received or paid but the effect of which must be recorded in the accounts (at the end of the accounting period)
2. reclassification: true relection of the transaction t the time, does not result in ana appropriate assigning of revenues at the time

Question 8

what is an account balance?

Answer 8

sum of the additions and subtractions to an account through a given date

Question 8

what is an accrual?

Answer 8

the process of recognizing revenue that has been earned but not collected, or an expense that has been incurred but not paid

Question 9

what does it mean to be accrued?

Answer 9

revenue that has been earned and related to an asses that will be collected, or an expense that has been incurred but not paid

Question 10

what is an adjustment?

Answer 10

an entry typically made during the process of closing the books that results in more accurate financial statements. This process involves accruals and reclassifications

Question 11

What is a charge?

Answer 11

A debit

Question 12

what is a chart of accounts

Answer 12

index of accounts within the ledger

Question 13

what is “closing the books”

Answer 13

posting transactions, adjustments, and closing entries to the ledger and preparing financial statements

Question 14

what is credit

Answer 14

the right side of the account and represents a decrease in asset and expense accounts; an increase liability, stockholder equity, and revenue accounts

Question 15

what is debit

Answer 15

the left side of the account and represents an increase in assets and expense accounts; a decrease in stockholders equity, liabilities, and revenue accounts

Question 16

what is the relationship between the balance sheet and income statement(s)?

Answer 16

The balance sheet shows the cumulative effect of the income statement over time; assets = liabilities + stockholder’s equity <- net income = revenues - expenses

Question 17

what is a journal

Answer 17

a chronological record of transactions

Question 18

what is a journal entry

Answer 18

a description of a transaction in a format that shows the debit account(s) and amount(s) and credit account(s) and amount(s)

Question 19

what is a ledger

Answer 19

where transactions are posted to after their initial recording

Question 20

what is “on account”

Answer 20

describes a purchase or sale transaction for which cash will be paid or received at a later date. A “credit” transaction

Question 21

what is “post”

Answer 21

the process of recording transactions in the respective ledger accounts using a journal entry as the source of the information recorded

Question 22

what is a source document?

Answer 22

evidence of a transaction that support a journal entry recording the transaction

Question 23

what is a t-account

Answer 23

an account format such that the debit is on the left and the credit is on the right

Question 24

describe the transaction analysis methodology

Answer 24

answers five questions to ensure that a transaction is understood: 1. What's going on? 2. What accounts are affected? 3. How are they affected? 4. Does the balance sheet balance? 5. Does the analysis make sense?

Question 25

what is a transaction?

Answer 25

economic interchanges between entities that are accounted for and reflected in financial statements

Question 26

where is the normal balance of the assest?

Answer 26

debit

Question 27

where is the normal balance for liabilities

Answer 27

credit

Question 28

where is the normal balance for stockholder's equity

Answer 28

credit

Question 29

what are the components of stockholder's equity?

Answer 29

paid-in capital and retained earnings

Question 30

what is reclassification =?

Answer 30

initial recoding of a transaction does not result in appropriate assigning of revenues to the period in which they were earned or expenses to the period in which they were incurred

Question 31

what are accrued revenues and expenses?

Answer 31

revenues: assets resulting from revenues that have been earned but for which no cash has yet been received expenses: liabilities arising from expenses that have been incurred but not yet paid in cash

Question 32

what are deferred revenues and expenses

Answer 32

(unearned) revenues: liabilities arising from the receipt of cash for which revenue has not yet been earned (prepaid) expenses: assets arising from the payment of cash which have been used or consumed by the end of the period

Question 33

what increases retained earnings?

Answer 33

expenses, loses, and dividends

Question 34

what increases retained earnings

Answer 34

revenues and gains

Question 35

a debit entry will:

Answer 35

increase the balance of an expense account

Question 36

Unquiet Hands, Incorporated borrowed $30,000 on October 1, 2022 at 6% interest with both principal and interest due on September 30, 2023. How much should be in Unquiet Hands, Incorporated’s interest payable account at December 31, 2022?

Answer 36

$30,000 * 6% = 1,8000 per year; 1,800*3.5 months = $450

Question 37

The balance in the Accounts Receivable account decreased from $18,000 at the beginning of the month to $15,000 at the end of the month. Sales on account during the month totaled $130,000. No accounts receivable were written off as uncollectible during the month. Cash collections of accounts receivable during the month totaled:

Answer 37

Accounts Receivable Beginning Balance + Sales - Accounts Receivable Ending Balance

Question 38

HammerNail Woodworks agreed to make a short-term loan to a component parts supplier. A note for $40,000 was issued by HammerNail on November 1, 2022 at 6% interest with both principal and interest due on October 31, 2023. Which of the following journal entries should HammerNail use to record the transaction when the supplier repays the note in full on October 31, 2023?

Answer 38

Debit - Cash Credit - Notes Receivable Credit - Interest Receivable Credit - Interest revenue

Question 39

a chart of accounts

Answer 39

as an index to the ledger, each account is numbered to facilitate frequent references made

Question 40

The balance in the Wages Payable account was $20,000 at the beginning of the month. Wages accrued during the month totaled $38,000. Wages paid during the month were $43,000. What is

Answer 40

Wages Payable Balance + Wages Accrued - Wages Paid

Question 41

HammerNail Woodworks agreed to make a short-term loan to a component parts supplier. A note for $40,000 was issued by HammerNail on November 1, 2022 at 6% interest with both principal and interest due on October 31, 2023. Which of the following journal entries should HammerNail use to accrue interest at the end of each month?

Answer 41

Debit - Interest Receivable Credit - Interest revenue

Question 42

a credit entry will

Answer 42

increase a libaility account

Question 43

In the seller's records, the sale of merchandise on account would:

Answer 43

increase assets and increase expenses.

Question 44

The accounting concept/principle being applied when an adjustment is made is usually:

Answer 44

matching revenue and expense.

Question 45

A journal:

Answer 45

is where transactions are initially recorded.

Question 46

The accountant at WooSah! USA made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to:

Answer 46

increase ROI for february

Question 47

The effect of an adjustment is::

Answer 47

increase the accuracy of the financial statement

Question 48

Sales on account during the month totaled $78,000. Cash collections of accounts receivable during the month totaled $72,000. The balance in the Accounts Receivable account at the end of the month was $31,000. No accounts receivable were written off as uncollectible during the month. The balance in the Accounts Receivable account at the beginning of the month was:

Answer 48

ending balance = beginning balance + sales on account - Accounts Receivable