Quiz 2

Question 1

External Events (and example)

Answer 1

External events involve an exchange between the company and another entity (i.e. borrowing cash from a bank, purchasing merchandise inventory for cash)

Question 2

Internal Events (and example)

Answer 2

Internal transactions do not involve an exchange transaction but do affect financial position (i.e. depreciation of equipments and use of supplies)

Question 3

What is the purpose of a journal?

Answer 3

Journals provide a chronological record of all economic events affecting a firm

Question 4

What is the purpose of a general ledger?

Answer 4

General Ledgers record increases and decreases in each element of a company’s financial position

Question 5

Permanent Accounts

Answer 5

Permanent accounts represent assets, liabilities, and shareholders’ equity at a point in time

Question 6

Temporary Accounts

Answer 6

Temporary accounts represent changes in the retained earnings component of shareholders’ equity for a corporation caused by revenue, expense, gain, and loss transactions

Question 7

Describe how debits and credits affect assets, liabilities, and permanent owners’ equity.

Answer 7

Accounts on the left side of the accounting equation (assets) are increased by debit entries and decreased by credit entries. Accounts on the right side of the accounting equation (liabilities and shareholder’s equity) are increased by credit entries and decreased by debit entries.

Question 8

Describe how debits and credits affect temporary owners’ equity accounts.

Answer 8

The balances in these temporary accounts are periodically, usually once a year, closed, and he net effect is recorded in the permanent retained earnings account.

Question 9

What is the first step in the accounting process cycle? What role do source documents fulfill in this step?

Answer 9

he first step in the process is to identify external transactions affecting the accounting equation. An accountant usually does not directly witness business transactions, so source documents such as sales invoices, bills from suppliers, and cash register tapes serve this need.

Question 10

Describe what is meant by transaction analysis.

Answer 10

The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved.

Question 11

Describe what is meant by posting, the fourth step in the processing cycle

Answer 11

Periodically transfer or post the debit and credit information from the journal to individual ledger accounts.

Question 12

Unadjusted trial balance

Answer 12

An unadjusted trial balance is a list of the general ledger accounts and their balances at a particular date

Question 13

Adjusted Trial Balance

Answer 13

An adjusted trial balance is the balance after adjusting entries have been recorded

Question 14

Define adjusting entries and discuss their purpose

Answer 14

Adjusting entries are internal transactions recorded at the end of any period when financial statements are prepared. These entries help ensure that all revenues are recognized in the period goods or services are transferred to customers, regardless of when the cash is received.

Question 15

Define closing entries and their purpose.

Answer 15

Closing entries are the temporary accounts are reduced to zero balances, and these temporary account balances are closed to retained earnings to reflect the changes that have occurred in that account during the period.

Question 16

Define prepaid expenses and provide at least two examples

Answer 16

Prepaid expenses are the costs of assets acquired in one period and expenses in a future period. Examples include the payment of rent in advance and the purchase of buildings, equipment or supplies.

Question 17

Deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. What adjusting journal entry is required at the end of a period to recognize the amount of deferred revenues that were recognized during the period?

Answer 17

Deferred Revenue

Revenue

Question 18

Define accrued liabilities. What adjusting journal entry is required to record accrued liabilities?

Answer 18

Accrued liabilities represent liabilities recorded when an expense has been incurred prior to cash payment. The journal entry is always a debit to an expense and a credit to a liability

Question 19

Income Statement purpose

Answer 19

To summarize the profit-generating activities of a company that occurred during a particular period of time.

Question 20

Statement of Comprehensive Income purpose

Answer 20

To report the changes in shareholders’ equity during the period that were not a result of transactions with owners.

Question 21

Balansen Sheet purpose

Answer 21

To present the financial position of the company on a particular date

Question 22

Statement of Cash Flows purpose

Answer 22

To report the events that caused cash to change during the period

Question 23

Statement of Shareholders’ Equity purpose

Answer 23

To disclose the sources of the changes in the various permanent shareholders’ equity accounts that occurring during the period from investments by owners, distributions to owners, net income, and other comprehensive income.