The Accounting Cycle Steps 1-2

Question 1

First Step in the Accounting Cycle

Answer 1

Collect and Analyze Transactions

Question 2

Second Step in the Accounting Cycle

Answer 2

Record and post transactions

Question 3

All 6 steps in accounting cycle in order

Answer 3

Collect and Analyze Transactions

Record and post transactions

Prepare the Unadjusted Trial Balance

Prepare Adjusting entries

Prepare the Adjusted trial balance & complete a final review

Use Adjusted Trial Balance to prepare the financial statements

Question 4

Used to list the details of an individual event, like an expense or revenue transaction. Listing a transaction in the journal makes it easier to see than searching through the general ledger.

Answer 4

Transaction Journal

Question 5

Examples of the different types of events that should be recorded in a transaction journal.

Answer 5

Sales transactions, Cash Receipts, Credit Purchases, Cash Disbursement & “Other”
Other-general journal entries for other financial activities that occur within the business-like depreciation, interest income, and interest expense.

Question 6

Transaction Journal - What should you include?

Answer 6

The amount of money exchanged
Date
Transaction Type
Name (Customer Vendor Name)
Their billing address & contact information, possibly email
Memo or Description
Account
- The accounts in the chart of accounts that are impacted by this event.

Question 7

Lists all of the accounts and sub-accounts used to categorize transactions, it organizes and categorizes a business’ financial information.

Answer 7

Chart of Accounts

Question 8

Chart of Accounts & General Ledger are different from what?

Answer 8

A Transaction Journal

Question 9

What can you do to a Chart of Accounts?

Answer 9

You can customize the account types and assign account numbers, which can be created by the bookkeeper, client, or accountant.

Question 10

A record of all financial transactions in a business, organized by account.

Answer 10

General Ledger (GL)

Question 11

How does the General Ledger group transactions?

Answer 11

By account type and shows the balances for each account.

Question 12

Transaction Journal lists things in what order?

Answer 12

chronological order

Question 13

Split Column in General Ledger-what does it show?

Answer 13

Shows the other accounts impacted by the transaction.

Question 14

Every transaction results in what?

Answer 14

Changes in multiple places.

Question 15

General Ledger vs Transaction Journal differences?

Answer 15

General ledger is a record of all financial transactions in a business, organized by account, groups transactions by account type and shows the balances for each account.
A Transaction journal, lists transactions in chronological order.

Question 16

An entity that the business purchases products or services from, sometimes for resell or for business use, also known as a supplier.

Answer 16

Vendor

Question 17

Transaction Journal - what does it do?

Answer 17

The transaction journal lists transactions in chronological order and does not separate them by account.

As a result, balances are not included in the transaction journal.

Question 18

What is not included in a Transaction Journal?

Answer 18

Balances–
The transaction journal lists transactions in chronological order and does not separate them by account.
As a result, balances are not included in the transaction journal.

Question 19

Lists all of the accounts and sub-accounts used to categorize transactions.

Answer 19

Chart of Accounts

Question 20

What step is this in the accounting cycle?
-Track and interpret sales, expenses, invoices, and payments.

Answer 20

Step 2 of Accounting Cycle: Record & Post Transactions

Question 21

What can Step 2 of Accounting Cycle “Record & Post Transactions “help you see for the business ?

Answer 21

-You can help your clients see a clear picture of their business and make informed decisions.
-You may notice increasing expenses for the business, or you discover a highly profitable product.
-You can help your clients see a clear picture of their business and make informed decisions.

Question 22

Double-entry bookkeeping: What is it?

Answer 22

-Every transaction is recorded twice, a method of recording financial transactions that ensures accuracy and balance in accounting records.
-Every transaction has two aspects: a debit and a credit. Both aspects must be recorded to maintain the equilibrium of the accounting equation.

Question 23

Involves comparing entries in the ledger/journal to available documentation, such as receipts and invoices. By performing this process, you can verify that all transactions have been recorded correctly, in the right places, and with accurate amounts.

Answer 23

Reconciliation

Question 24

What do you need to gather for the reconciliation process?
What do you do with that?

Answer 24

1. Gather documentation
2. Compare entries
3. Check for accuracy
4. Identify discrepancies
5. Make adjustments

Question 25

Balancing - In double-entry bookkeeping

Answer 25

Keep track of increases and decreases using the debit and credit columns. When a transaction occurs, it is recorded with at least one debit and one credit entry.
Make sure that the total amount of debits matches the total amount of credits for each transaction. If the debits and credits do not match you need to review the entries.

Question 26

T-Chart/ T-Account

Answer 26

Simple way to visualize double-entry bookkeeping. They can be used to track the financial information of a business or individual. The debit and credit entries in a T-chart must always balance.

Question 27

What does a debit show in a T Chart?

Answer 27

Shows an increase in assets or expenses, or a decrease in liabilities, owner’s equity or revenue.

Question 28

What does a credit show in a T Chart?

Answer 28

Shows a decrease in assets or expenses, or and increase in liabilities, owner’s equity, or revenue.

Question 29

Reporting & T-Charts

Answer 29

You will report using a t-chart or t-account. This organizes your client’s financial information in a neat and structured way.

Question 30

DEA/LER - What does DEA stand for?

Answer 30

D = Debit
E = Expense accounts
A = Asset accounts

-When we debit an account, we are increasing its value. When a client has expenses like office supplies, or when they buy assets, the business will own such equipment or inventory, we debit those accounts. This means they go on the left side of our financial equation.
(example, when we debit an asset account, we are increasing its value, and since assets increase value, assets will also be debited so this goes on the left side.)

Question 31

DEA/LER - What does LER stand for?

Answer 31

L = Liability
E = Equity
R = Revenue accounts

-When we credit an account, it indicates an increase in liabilities, equity, or revenue, or a decrease in assets or expenses. When a business has liabilities like loans or accounts payable, equity from owner investments or retained earnings, or when it generates revenue from sales/services, we credit those accounts. This means they go on the right side of our financial equation.

Question 32

When we debit an Expense or Asset account what are we doing?

Answer 32

We increase its value, and it goes on the left side of the equation. (I think t-account)

Question 33

When we credit an Expense or Asset account what are we doing?

Answer 33

We credit a Liability, Equity, or Revenue account, we increase its value, and it goes on the right side of the equation.

Question 34

Cash-basis Accounting Method

Answer 34

A method where revenues and expenses are recognized based on actual receipt or payment, rather than the completion of work or delivery of goods.
This means transactions are recorder in real-time as they occur, everything is recorded when it happens.

Question 35

Cash-basis Accounting - Another way of thinking about it.

Answer 35

Record revenue & expenses based on the actual cash flow.

Question 36

What does Cash-Basis Accounting Lack?

Answer 36

No Accounts payable or Accounts Receivable
Can not be used if client offers credit or has inventory.

Question 37

What can’t client see with no Accounts payable or Accounts Receivable in cash-Basis Accounting?

Answer 37

Unaware of what they owe or is owed to them.

Question 38

In Cash-basis accounting, what can bookkeepers do to help the client?

Answer 38

Since we track bills, and invoices, we can create cash flow reports and projections, since there is no Accounts Payable or Accounts Receivable and they are not aware of what they owe or what is owed to them.

Question 39

What advantage does Cash-basis accounting have?

Answer 39

Tax advantage.

Question 40

What is there a tax advantage in cash-basis accounting?

Answer 40

Small businesses only pay taxes on the money actually in their bank accounts, not on hypothetical earnings.

Question 41

What is the Net Income equation? The taxable amount in cash-basis accounting & why is it an advatage?

Answer 41

Income - Expenses = Taxable Amount.
Small businesses only pay taxes on the money actually in their bank accounts, not on hypothetical earnings.

Question 42

What type of accounting method is a favorite for small business’s?

Answer 42

Cash-Basis Accounting.

Question 43

What doesn’t cash-Basis accounting give the full picture of from small businesses?

Answer 43

The full picture of income and expenses.

Question 44

When should a small business use Accrual Accounting instead of Cash-Basis?

Answer 44

Deals with inventory, and worries about future transactions.

Question 45

Cash-basis accounting records______ & _______ when the cash is received or paid.

Answer 45

revenue & expenses

Question 46

According to the cash-basis accounting method, when would a business recognize its expenses?

Answer 46

When the expense is paid out.

Question 47

Accrual Accounting Method?

Answer 47

A way of recording revenue and expenses when they happen, not when the cash is received or paid.

Question 48

A way of recording revenue and expenses when they happen, not when the cash is received or paid.

Answer 48

Accrual Accounting Method

Question 49

Accrual Accounting Method is more accurate than _______?

Answer 49

Cash-Basis Accounting because it reflects the true financial position of a business.
(Example, if a business sells goods on credit, it will record the revenue even though it has not yet received the cash.)

Question 50

The Accrual Accounting Method in small businesses ensure what ____?

Answer 50

Ensures that the business’s income statement reflects the full amount of revenue that it generates.

Question 51

Modified cash-basis accounting method

Answer 51

-Hybrid approach; a blend of cash-basis and accrual accounting.
-Practical and widely used accounting method among small businesses.

Question 52

What does Modified Cash-Basis let businesses do?

Answer 52

Use Accrual basis for specific transactions & while using cash basis for others.

Question 53

When does Modified Cash-Basis recognize revenue?

Answer 53

It recognizes revenue when payment is received but expenses when they are incurred.

Question 54

Modified cash-basis accounting allows businesses to have a more comprehensive view of their financial standing.

Answer 54

N/A

Question 55

What 2 things does modified cash-basis accounting introduce?

Answer 55

Accounts payable - help businesses track the money owed to suppliers, vendors, or creditors
Accounts receivable - keep tabs on the money owed to the business by its customers or clients.

Question 56

Accounts Payable

Answer 56

Help businesses track the money owed to suppliers, vendors, or creditors

Question 57

Accounts Receivable

Answer 57

Keep tabs on the money owed to the business by its customers or clients.

Question 58

By recording revenue and expenses on a cash-basis timeline what are businesses able to see?

Answer 58

How much money is coming in and going out in real-time.

The accounts payable and accounts receivable accounts provide insights into future revenue and expenses that are owed or due but haven’t been paid yet.

Question 59

Modified cash-basis accounting method limitation.

Answer 59

“if a business has prepaid expense accounts, this method may not be suitable”

Question 60

When you are done with the reconciliation process, what is the last thing you have to do in that process?

Answer 60

Once all adjustments are made, ensure that the ledger/journal entries match the documentation accurately.
Document the reconciliation process and any changes made to provide a clear audit trail and reference for future analysis.