The "real" accounting system Flashcards
What are the “inputs” in the accounting system? (2)
Transactions and other events
What are the “processes” in the accounting system?
The bookkeeper’s JE’s during the year
What is the function of closing entries? (2)
- To “reset” the nominal accounts for the next period
2. To make the balances on all the equity accounts in the SOFP
Which financial statement is prepared using the pre-closing TB?
The statement of comprehensive income
Which financial statement is prepared using the post-closing TB?
The statement of financial position
List the processes involved in the accounting system (7):
- Bookkeeper’s JE’s during the year
- Pre-adj TB
- Adjusting JE’s
- Post adj TB
- Closing JE’s
- Post closing TB
- Reversing JE’s
What is the function of adjusting entries?
To adjust the records to report correctly
Why are adjusting entries needed? (4)
- Recording errors
- Source document doesn’t identify relevant events
- No source document
- Special year end events
When do the year-end process take place?
At the end of the financial year
What does “arrears” mean?
Rent due after the land has been used
What does the JE look like for a reversing entry, when a payment has been forgotten or skipped?
DR Rent expense (P/L)
CR Bank (A)How should you think in order to determine the adjusting entry? (3)
- What effects have the bookkeeper’s entries had on the ledger?
- What should be in the ledger to achieve the correct reporting?
- Therefore, how does the ledger need to change?
What does the JE look like for a reversing entry, when a payment has been overstated?
DR Bank (A)
CR Rent expense (P/L)What does the JE look like for a reversing entry, when a payment has been prepaid as an asset?
DR Rent Expense (P/L)
CR Prepaid rent (A)
What does the JE look like for a reversing entry, when a payment has been recorded as rent expense?
DR Prepaid rent (A)
CR Rent expense (P/L)
