Module 4 Study Guide

Question 1

The Accounting Cycle

Answer 1

The eight steps in the accounting cycle are:
1. Analyze transactions by examining source documents
2. Journalize transactions in the general journal
3. Post entries to the respective accounts in the general ledger
4. Prepare a trial balance of the unadjusted accounts and begin the trial balance
worksheet
5. Journalize and post adjusting journal entries, prepare adjusted trial balance, and
complete worksheet
6. Prepare the financial statements
7. Journalize and post closing entries
8. Prepare the post-closing trial balance

Question 2

What are Special Journals and Subsidiary Ledgers and why are they used?

Answer 2

Special journals group together similar transactions. Subsidiary ledgers are within an accounting system and contain accounts receivable and accounts payable showing how much each customer owes (accounts receivable) and how much is owed to each supplier (accounts payable)

Question 3

Define an Accounting Information System

Answer 3

Accounting Information Systems organize financial data

Question 4

Differentiate between a classified and unclassified Balance Sheet

Answer 4

classified balance sheet: contains the same 3 major categories & subdivides them to provide useful information for interpretation & analysis by users of financial statements

unclassified balance sheet: includes 3 major categories- assets, liabilities, & stockholders equity

Question 5

DBD Company paid Company A $15,000 for their outstanding receivable that had been outstanding for 40 days. Company A’s credit terms with DBD were Net 30 days.

To account for this $15,000 transaction, how should Company A record this event in the general journal?

Answer 5

Debit cash for $15,000 and credit accounts receivable for $15,000.

Question 6

Which step in the accounting cycle comes after journalizing transactions in the general journal?

Answer 6

Posting entries to the general ledger

Question 7

Of the eight steps or processes of the accounting cycle that an accountant follows in each closing, which procedure is last?

Answer 7

Prepare the post-closing trial balance.

Question 8

How do computerized accounting systems benefit accounting firms?

Answer 8

By organizing financial accounting data

Question 9

What purpose do special journals serve in accounting?

Answer 9

They group together similar transactions, like sales and purchases.

Question 10

accounting cycle

Answer 10

a series of steps performed during the accounting period (some throughout the period and some at the end) to analyze, record, classify, summarize, and report useful financial information for the purpose of preparing financial statements.

Question 11

business transaction

Answer 11

are measurable events that affect the financial condition of a business.

Question 12

journalizing

Answer 12

the process of entering the effects of a transaction in a journal.

Question 13

posting

Answer 13

the process of transferring the information in the general journal to the ledger accounts.

Question 14

accrual basis of accounting

Answer 14

recognize revenues when the company makes a sale or performs a service, regardless of when the company receives the cash.

Question 15

matching concept

Answer 15

the matching of expenses to revenues in the period that revenues are recorded.

Question 16

worksheet

Answer 16

a columnar sheet of paper or a computer spreadsheet on which accountants summarize information needed to make the adjusting and closing entries and to prepare the financial statements.

Question 17

simple journal entries

Answer 17

involved one debit and one credit.

Question 18

special journals

Answer 18

group together similar transactions.

Question 19

accounting information systems

Answer 19

organize financial data

Question 20

operating cycle

Answer 20

(or cash cycle) is the time it takes to begin with cash, buy necessary items to produce revenues (such as materials, supplies, labor, and/or finished goods), sell goods or services, and receive cash by collecting the resulting receivables.

Question 21

classified balance sheet

Answer 21

contains the same three major categories and subdivides them to provide useful information for interpretation and analysis by users of financial statements.

Question 22

The eight steps in the accounting cycle are:

Answer 22

Analyze transactions by examining source documents
Journalize transactions in the general journal
Post entries to the respective accounts in the general ledger
Prepare a trial balance of the unadjusted accounts and begin the trial balance worksheet
Journalize and post adjusting journal entries, prepare adjusted trial balance, and complete worksheet
Prepare the financial statements
Journalize and post closing entries
Prepare the post-closing trial balance

Question 23

How are assets listed on the balance sheet?

Answer 23

Most liquid to least liquid

Question 24

Which statement about the worksheet is not correct?

The worksheet is prepared during step five of the accounting cycle.

The worksheet can be used instead of the general journal.

The worksheet is prepared each time financial statements are needed.

The worksheet is not part of the formal accounting records.

Answer 24

The worksheet can be used instead of the general journal.

Question 25

Which asset is considered current on the asset side of the typical balance sheet?

Prepaid expenses

Leasehold improvements

Land

Intangible assets

Answer 25

Prepaid expenses

Question 26

Accumulated depreciation and accumulated amortization are contra accounts to which type of accounts on basic financial statements?

Answer 26

Asset accounts

Question 27

Which account is a temporary, or nominal, account closed directly to the retained earnings account at the end of the accounting period?

Dividends

Revenue

Equipment

Income summary

Answer 27

Dividends