Chapters 3-4

Question 1

What is an accounting transaction?

Answer 1

This occurs when assets liabilities or stockholders equity items change as a result of some economic event

Question 2

What is the accounting equation?

Answer 2

Assets=Liabilities+SE

Question 3

What is an account?

Answer 3

An individual accounting record of increase and decrease in a specific asset, liability, SE, Revenue, expense.

Question 4

What is T-Account?

Answer 4

The simplest form of accounting which consists of three main things
1-The title of the account
2-The left side or Debit side
3-The right side or credit side

Question 5

How do Assets React to Debits and Credits?

Answer 5

Debits increase

Credits Decrease

Question 6

How do Liabilities React to Debits and Credits?

Answer 6

Credits increase

Debits Decrease

Question 7

How does SE react to Debits and Credits?

Answer 7

Credits increase

Debits Decrease

Question 8

How does Revenue react to Debits and Credits?

Answer 8

Credits increase

Debits Decrease

Question 9

How does Expenses React to Debits and Credits?

Answer 9

Debits increase

Credits Decrease

Question 10

How are Journals recorded?

Answer 10

In chronological order

Question 11

What is the ledger?

Answer 11

Provides the balance in each of the accounts as well as keeps track of changes in these balances.

Question 12

What is a general Ledger?

Answer 12

This contains all the assets, liabilities, and SE. And Revenue and expense

Question 13

what is the chart of accounts?

Answer 13

the list of all the accounts

Question 14

What is the first step of the accounting cycle?

Answer 14

Analyze Transactions

Question 15

What is the second step of the account cycle?

Answer 15

Journalize Transactions

Question 16

What is the third step of the accounting cycle?

Answer 16

Post to Ledger

Question 17

What is the fourth step of the accounting cycle?

Answer 17

Prepare Trial Balance

Question 18

What is the Fifth Step of the accounting cycle?

Answer 18

Journal / post to adjusting enteries

Question 19

What is the sixth step of the accounting cycle?

Answer 19

Prepare adjusting trial balance

Question 20

What is the seventh step of the accounting cycle?

Answer 20

Prepare the financial statements

Question 21

What does it mean to Analyze Transactions?

Answer 21

Jan 2 An amount of $36,000 was paid as advance rent for three months.
Jan 3 Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%.
Jan 4 Purchased office supplies costing $17,600 on account.
Jan 13 Provided services to its customers and received $28,500 in cash.
Jan 13 Paid the accounts payable on the office supplies purchased on January 4.
Jan 14 Paid wages to its employees for first two weeks of January, aggregating $19,100.
Jan 18 Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.
Jan 23 Received $15,300 from customers for the services provided on January 18.
Jan 25 Received $4,000 as an advance payment from customers.
Jan 26 Purchased office supplies costing $5,200 on account.
Jan 28 Paid wages to its employees for the third and fourth week of January: $19,100.
Jan 31 Paid $5,000 as dividends.
Jan 31 Received electricity bill of $2,470.
Jan 31 Received telephone bill of $1,494.
Jan 31 Miscellaneous expenses paid during the month totaled $3,470

Question 22

What does it mean to Journalize Transactions

Answer 22

Cash	 	  
$100,000	$36,000	 	
28,500	      60,000	 	 	 
32,900	    17,600	 	 	 
15,300	19,100	 	 	 
4,000	19,100	 	 	 
 	    5,000	 	 	 
 	    3,47

T accounts

Question 23

What does Post to Ledger mean?

Answer 23

Date
2013 Particulars Debit Credit
Dec 1 Cash 10,000.00
Mr. Gray, Capital 10,000.00

Question 24

What does it mean to prepare trail balance

Answer 24

For each ledger account — Cash, Accounts Payable, etc. — total your credits and debits.
If the credit total is larger, subtract the debit total from the credit total to get your ledger account total which goes in the credit column of the trial balance
If the debit total is larger, subtract the credit total from the debit total to get your ledger account total which goes in the debit column of the trial balance
Put the ledger account total in the credit or debit column of your trial balance (as identified above).
When you have debit or credit totals for each ledger account, add all of your credit totals to get a credit grand total.
Add all of your debit totals to get a debit grand total. This is your trial balance.

Question 25

What is accrual based accounting?

Answer 25

measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur.

Question 26

how does the book define Accrual based accounting?

Answer 26

Transactions that change a companies

Question 27

What is an accrual expense?

Answer 27

expenses that have occurred but are not yet recorded through the normal processing of transactions. Since these expenses are not yet in the accountant’s general ledger, they will not appear on the financial statements unless an adjusting entry is entered prior to the preparation of the financial statements.

Question 28

What is an accrual Revenue?

Answer 28

income that has been incurred but not received, such as monthly rent that is due in arrears, or following the monthly rental period. The income has been earned (since an individual or firm rented the item) but the revenue has not been received (as per the rental agreement to pay in arrears).

Question 29

What are adjusting entries?

Answer 29

journal entries made at the end of the accounting period to allocate revenue and expenses to the period in which they actually are applicable.

Question 30

What is a prepaid expense?

Answer 30

future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The amount of prepaid expenses that have not yet expired are reported on a company’s balance sheet as an asset.

Question 31

What is an unearned revenue?

Answer 31

pre-payment” for goods or services which a person or company is expected to produce to the purchaser. As a result of this prepayment, the seller now has a liability equal to the revenue earned until deliver of the good or service.

Question 32

what is depreciation?

Answer 32

a reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Question 33

What is an overstatement in accounting?

Answer 33

When an accountant states that a reported amount is overstated, it means two things:

The reported amount is incorrect, and

The reported amount is more than the true or correct amount.

Question 34

What is an understatement in accounting?

Answer 34

When an accountant says that an amount is understated, it means two things:

The amount is not the correct amount, and

The amount is less than the true amount. In other words, the amount is too small.

Question 35

What is the matching principle?

Answer 35

states that expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs.

Question 36

What is revenue recognition?

Answer 36

principle is a cornerstone of accrual accounting together with matching principle. They both determine the accounting period, in which revenues and expenses are recognized.

Question 37

What is an account in accounting?

Answer 37

refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger.

Question 38

What is the accounting information system>?

Answer 38

s a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors and regulatory and tax agencies.

Question 39

What is a chart of accounts?

Answer 39

A chart of accounts (COA) is a created list of the accounts used by an organization to define each class of items for which money or the equivalent is spent or received.

Question 40

What is the double entry system?

Answer 40

transactions are recorded in terms of debits and credits. Since a debit in one account will be offset by a credit in another account, the sum of all debits must therefore be exactly equal to the sum of all credits.

Question 41

What is a trial balance?

Answer 41

a statement of all debits and credits in a double-entry account book, with any disagreement indicating an error.

Question 42

What is a normal balance?

Answer 42

is the accounting classification of an account. It is part of double-entry book-keeping technique. An account has either credit (Abbrev. CR) or debit (Abbrev.