SUA Chapter 1 Flashcards
footnotes?
a CPA firm cannot indicate that the statements are fairly stated unless footnotes are included
transactions
the exchanges between a company and another party
Recording Transactions Take 5 Steps
- Identify the exchanges or adjustments that must be recorded
- Determine which account balances are affected by the exchanges or adjustments
- Assign proper values to the transactions for each account
- Record the transactions in the proper time period
- Record the transactions in the accounting records, and summarize them into the financial statements.
Steps in the accounting process
- Transactions occur
- Prepare Documents
3 Record in Journals - Post to ledgers
- Prepare Unadjusted General Ledger Trial Balance
- Prepare and Post adjusting Entries
- Prepare adjusted Trial Balance
8 Prepare Financial Statements - Prepare Closing Entries
Types of Journals
Sales Journal Cash Receipts journal Purchase journal Cash disbursements journal Payroll journal General journal
Sale Journal
Sale or other revenue, sale returns and allowances may be recorded here or in a separate journal
Cash receipts journal
all cash receipts
Purchases journal
all purchases of goods and services except payroll, purchase returns and allowances may be recorded here or in a separate journal
cash disbursements journal
all cash disbursements made by check except payroll
payroll journal
all payroll disbursements(usually made by check)
General Journal
error corrections, adjusting entries, closing entries, and other transactions not recorded in other journals
chart of accounts
account titles for a company are included in this
general ledger
summarized the transactions in journals
subsidiary ledgers
ledgers that have all of the transactions in them
adjusting entries
used to adjust totals from cash to accrual basis
only recorded at the end of the period
recorded in the general journal
most adjusting entries are not posted to sub ledgers
Six General Categories of Adjusting Entries
Prepaid expense Accrued Expense Accrued Revenue Unearned Revenue Estimated Items Inventory adjustment
Closing Entries
- Close all revenue accounts to income summary
- Close all expense accounts to income summary
- Close the income summary to stockholders’ equity
post closing trial balance
the statement that remains after all of the temporary accounts have been closed
source of each amount is a general ledger
internal controls
methods used by a company to safeguard its assets
- adequate documents and records
- authorization of transactions
- Separation of the custody of assets from accounting
- Independent checks on performance
adequate documents and records
documents should be:
- Prenumbered consecutively
- Prepared before the transaction occurs, at the time it occurs, or as soon as possible
- Sufficiently simple to make sure they are understood
- Designed for multiple uses whenever possible
- Constructed in a manner that aids correct preparation
authorization of transactions
every transaction must be authorized
separation of the custody of assets from accounting
you have to have a different person for the one who gets the cash and who records the cash to get rid of fraud
Independent checks on performance
there must be someone who checks other people’s work to verify accuracy and integrity
