Tutorial 2 Flashcards
accounting information system
The system of collecting and processing transaction data and communicating financial information to decision-makers is known as the accounting information system
account
An account is an individual accounting record of increases and decreases in a specific asset, liability, or equity item.
T-account
In its simplest form, an account consists of three parts: (1) a title, (2) a left or debit side, and (3) a right or credit side.
The Ledger
The entire group of accounts maintained by a company is the ledger. The ledger provides the balance in each of the accounts as well as keeps track of changes in these balances.
general ledger
A general ledger contains all the asset, liability, and equity accounts
posting
The procedure of transferring journal entries to the ledger accounts is called posting.
chart of accounts
This chart lists the accounts and the account numbers that identify their location in the ledger
transaction analysis
The purpose of transaction analysis is first to identify the type of account involved, and then to determine whether to make a debit or a credit to the account
trial balance
The trial balance proves the mathematical equality of debits and credits after posting.
transposition error
Reversing the order of numbers is called a
transposition error.
adjusted trial balance
After a company has journalized and posted all adjusting entries, it prepares another trial balance from the ledger accounts. This trial balance is called an adjusted trial balance. It shows the balances of all accounts, including those adjusted, at the end of the accounting period
What makes accounting information relevant?
Information is considered relevant if it provides information that has predictive value, that is, helps provide accurate expectations about the future, and has confirmatory value, that is, confirms or corrects prior expectations.
Materiality
Materiality is a company specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor.
Faithful representation
Faithful representation means that information accurately depicts what really happened. To provide a faithful representation, information must be complete (nothing important has been omitted), neutral (is not biased toward one position or another), and free from error
The time
period assumption
The time period assumption states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the busines
Going Concern Assumption
The going concern assumption states that the business will remain in operation for the foreseeable future. Of course, many businesses do fail, but in general it is reasonable to assume that the business will continue operating.
