Quiz 2 Flashcards
External Events (and example)
External events involve an exchange between the company and another entity (i.e. borrowing cash from a bank, purchasing merchandise inventory for cash)
Internal Events (and example)
Internal transactions do not involve an exchange transaction but do affect financial position (i.e. depreciation of equipments and use of supplies)
What is the purpose of a journal?
Journals provide a chronological record of all economic events affecting a firm
What is the purpose of a general ledger?
General Ledgers record increases and decreases in each element of a company’s financial position
Permanent Accounts
Permanent accounts represent assets, liabilities, and shareholders’ equity at a point in time
Temporary Accounts
Temporary accounts represent changes in the retained earnings component of shareholders’ equity for a corporation caused by revenue, expense, gain, and loss transactions
Describe how debits and credits affect assets, liabilities, and permanent owners’ equity.
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.
Describe how debits and credits affect temporary owners’ equity accounts.
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.
What is the first step in the accounting process cycle? What role do source documents fulfill in this step?
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.
Describe what is meant by transaction analysis.
The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved.
Describe what is meant by posting, the fourth step in the processing cycle
Periodically transfer or post the debit and credit information from the journal to individual ledger accounts.
Unadjusted trial balance
An unadjusted trial balance is a list of the general ledger accounts and their balances at a particular date
Adjusted Trial Balance
An adjusted trial balance is the balance after adjusting entries have been recorded
Define adjusting entries and discuss their purpose
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.
Define closing entries and their purpose.
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.
Define prepaid expenses and provide at least two examples
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.
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?
Deferred Revenue
Revenue
Define accrued liabilities. What adjusting journal entry is required to record accrued liabilities?
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
Income Statement purpose
To summarize the profit-generating activities of a company that occurred during a particular period of time.
Statement of Comprehensive Income purpose
To report the changes in shareholders’ equity during the period that were not a result of transactions with owners.
Balansen Sheet purpose
To present the financial position of the company on a particular date
Statement of Cash Flows purpose
To report the events that caused cash to change during the period
Statement of Shareholders’ Equity purpose
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.
