Module 2 Flashcards
Every financial transaction is recorded in the company’s financial records in what is known as _________.
The recording process
What is the recording process?
ID transaction > understand transaction > create journal entry > post to t-accounts > create trial balance > create financial statements
Which two parts of the recording process are a part of the balance sheet?
ID transactions and understand transactions
List the types of asset accounts.
Accounts Receivable Cash Deferred Tax Asset Fixed Assets Goodwill Interest Receivable Inventory Investments Notes Receivable Other Intangible Assets Other Prepaid Expenses Prepaid Insurance Prepaid Rent Property, Plant, & Equipment (P, P, & E)
List the types of Liability Accounts.
Accounts Payable Accrued Interest Accrued Taxes Accrued Wages Current Portion of Notes Payable Deferred Tax Liability Deferred Revenue Interest Payable Long Term Debt Notes Payable Short Term Debt Taxes Payable Wages Payable
List the types of Equity Accounts.
Capital Stock Common Stock Paid-In Capital Preferred Stock Retained Earnings Treasury Stock
List the types of Revenue Accounts (falls into owner’s equity).
Interest Revenue Miscellaneous Revenue Rent Revenue Sales Sales Revenue
List the types of Expense Accounts.
Cost of Goods Sold Depreciation Expense Interest Expense Office Supplies Expense Rent Expense Research & Development Expense Travel Expense
T/F: Each business is free to determine what accounts are necessary to capture the activities of their business.
True
Chart of Accounts definition
list of all of the accounts of a business. The list includes all asset, liability, equity, revenue, and expense accounts. The accounts and naming of accounts can vary from business to business.
What should be considered when choosing which accounts to include in the chart of accounts?
Materiality
What are the two halves of an accounting entry?
Debits (left) & Credits (right)
Which accounts do debits increase the balance of?
Debits increase the balances in Asset and Expense accounts.
Which accounts do debits decrease the balance of?
Debits reduce the balances in Revenue, Liability, and Owners’ Equity accounts.
Where are debits shown?
Debits are shown on the left side in journal entries, T-Accounts, and trial balances.
Which accounts do credits increase the balance of?
Credits increase the balances in Revenue, Liability, and Owners’ Equity accounts.
Which accounts do credits decrease the balance of?
Credits reduce the balances in Asset and Expense accounts.
Where are credits shown?
Credits are shown on the right side in journal entries, T-Accounts, and trial balances.
Does accounts payable increase or decrease with a credit?
increase
Does cash increase or decrease with a credit?
decrease
Does notes receivable increase or decrease with a debit?
increase
Does common stock increase or decrease with a debit?
decrease
Should a company debit or credit cash received from a customer and money borrowed from a bank loan?
debit
Should a company debit or credit wages paid to employees and money paid for inventory purchased?
credit
Should a company debit or credit suppliers paid for prior purchases and a third party paid the amount owed for a credit purchase?
debit
Should a company debit or credit inventory purchased on account and supplies purchased on credit?
credit
Journal Entry definition
The entry made to record a transaction in the financial records of a business. The information entered will include the accounts impacted, the dollar (or other currency) amounts involved, the date of the transaction, and often some notes explaining the transaction.
What two columns must a journal entry always include at least one of?
A journal entry always includes at least one debit and at least one credit, and the total debits must always equal the total credits.
Every journal entry has one line for _______.
Each account affected.
What is the minimum number of accounts affected per transaction in a journal entry?
at least 2
T/F: The total of all debits must equal the total of all credits.
True
Which comes first, the credit or the debit?
Debit.
Record the following transaction: On June 1, 2013 Cardullo’s purchased a case of Vermeiren Cookie Spread as inventory from its supplier for $200 and paid in cash.
Date
Account: Inventory
Debit: $200
Date
Account: cash
Credit: $200
Record the following transaction: Billie’s Beehives (BB) purchased a shipment of beehives on June 1, 2014 to sell to local beekeepers. It paid $500 for 100 hives.
Date
Account: inventory
Debit: $500
Date
Account: cash
Credit: $500
Record the following transaction: Accounts payable pays a supplier for $900 worth of merchandise purchased on credit.
Date:
Account: Accounts payable
Debit: $900
Date:
Account: Cash
Credit: $900
Record the following: A business pays $500k of dividends to its shareholders.
Date:
Account: dividends payable
Debit: $500k
Date:
Account: Cash
Credit: $500k
T-account definition
T-accounts are a simplified version of ledger accounts. A T-account shows all the activity for a given account for a specific period of time, or in other words, the T-account is the summary of several journal entries.
Where is debit activity shown on a t-account? Where is credit shown?
By convention, all debit activity is shown on the left side of T-accounts and all credit activity is shown on the right side of the T-accounts.
T/F: There is one t-account for all activity in a business.
False - There is a separate T-Account for each account, such as Cash or Accounts Receivable
T/F: Every T-account has a beginning and an ending balance, though the balance may be zero
True
T/F: A T-account covers activity for a period of time, for example, the month of January or the year 2014
True
T/F: Each transaction only affects one t-account.
False - Every transaction will affect at least two T-accounts
T/F: If you add the ending balances of all T-accounts, the total of all debits must equal the total of all credits
True
Does cash increase or decrease in a t-account?
Cash is an asset account and it is decreased by credits (on the right in T-accounts).
Does an expense increase or decrease in a t-account?
Expense accounts are increased by debits (on the left in T-accounts).
