Exam 2 Flashcards
What is the most basic building block in Accounting?
the account
What are the Permanent accounts?
Assests, Liabilites, owners Equity
What are the temporary accounts?
Revenue, Expenses, Gain on Sale, Loss on Sale
What is the difference between permanent accounts and temporary accounts?
Temporary accounts are closed out at the end of a term, while permanent accounts are never closed out
How does double entry accounting work?
Every debit entry must have an equal credit entry, and this will lead to the account being in balance
What are the components of the accounting system?
General Ledger, General Journal, Other journals
What is a trial balance?
financial report that lists all the ending balances of a company’s general ledger accounts
What is the purpose of a trial balance
To verify that total debits equal total credits after recording transactions and adjustments.
What happens during the closing process in accounting?
Temporary accounts are closed out to retained earnings, and a post-closing trial balance is prepared
What are the components of a financial statement?
Balance sheet, Income statement, statement of cash flows
How are transactions recorded in accounting?
Transactions are recorded in journals and then posted to the ledger
Cash Basis Accounting
Records transactions when cash is received or paid
Accrual Basis
Records transactions when they are earned or incurred, regardless of cash flow.
What do adjustments in accounting typically involve?
Recording additional transactions in the general journal to account for accruals, deferrals, or corrections
How many actions are in the Accounting Cycle?
8
What do Debits Equal?
Debits = Credits
What are the three tangible resources used in the Accounting Cycle?
Journal, General Ledger, Sub Journals
