Chapter 4: The Bookkeeping Process and Transaction Analysis

Question 1

The expanded balance/accounting equation

Answer 1

A = L + SE + R - E
A = L + PIC + RE(beg) + R - E

Question 2

on account

Answer 2

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

Question 3

journal

Answer 3

A chronological record of transactions.

Question 4

post

Answer 4

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

Question 5

ledger

Answer 5

A book or file of accounts.

Question 6

chart of accounts

Answer 6

An index of the accounts contained in a ledger.

Question 7

account balance

Answer 7

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

Question 8

t-account

Answer 8

An account format with a debit (left) side and a credit (right) side.

Question 9

debit

Answer 9

The left side of an account. An increase in asset and expense accounts; a decrease in liability, stockholders’ equity, and revenue accounts.

Question 10

credit

Answer 10

The right side of an account. A decrease in asset and expense accounts; an increase in liability, stockholders’ equity, and revenue accounts.

Question 11

source documents

Answer 11

Evidence of a transaction that supports the journal entry recording the transaction.

Question 12

adjustment

Answer 12

An entry usually made during the process of “closing the books” that results in more accurate financial statements. Adjustments involve accruals and reclassifications. Adjustments are sometimes made at the end of interim periods, such as month-end or quarter-end, as well.

Question 13

accrual

Answer 13

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

Question 14

accrued

Answer 14

Revenue that has been earned and a related asset that will be collected, or an expense that has been incurred and a related liability that will be paid.

Question 15

closing the books

Answer 15

The process of posting transactions, adjustments, and closing entries to the ledger and preparing the financial statements.

Question 16

transaction analysis methodology

Answer 16

The process of answering 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 my analysis make sense?

Question 17

accruals

Answer 17

transaction recorded for rev/expenses but no cash received/paid (cash lags)

Question 18

reclassifications

Answer 18

cash received/paid but no corresponding record of rev/expenses (cash leads)