Unit 5

Question 1

What are the 3rd and 4th steps of the accounting cycle?

Answer 1

3: Posting to the ledger
4: Preparing an unadjusted trial balance

Question 2

What are the 9 steps in the accounting cycle?

Answer 2

1. Analyzing business transactions
2. Journalizing transactions
3. Posting to the ledger
4. Preparing an unadjusted trial balance
5. Journalizing & posting adjusting entries
6. Preparing an adjusted trial balance
7. Preparing financial statements
8. Journalizing & posting closing entries
9. Post-closing trial balance

Question 3

What is a ledger?

Answer 3

A record that contains all of the company’s accounts and keeps information about the changes in each account in one place

Question 4

What is a two-sided ledger account and what info does it record?

Answer 4

T-accounts that record
1. Account name
2. Date + debit / credit amounts
3. Account balance

Question 5

Is the two-sided ledger used by accountants?

Answer 5

No — it is a learning tool

Question 6

Normal balance

Answer 6

The side of the account that is increasing
(e.g. DR is the normal balance for assets)

Question 7

Exceptional account balances

Answer 7

An account that does not have a normal balance
(e.g. if a customer overpays a debt, there is a credit amount in A/R, even though the normal balance for A/R is a debit)

Question 8

Chart of accounts

Answer 8

Numbering system for organizing accounts

Question 9

What number do assets start with?

Answer 9

1

Question 10

What number does net worth (capital / drawings) start with?

Answer 10

3

Question 11

What number do liabilities start with?

Answer 11

2

Question 12

What number do expenses start with?

Answer 12

5

Question 13

What number does revenue start with?

Answer 13

4

Question 14

What is a trial balance?

Answer 14

A list of accounts with account numbers and DR/CR balances

Question 15

Purpose of the trial balance

Answer 15

To check the accuracy of the ledger

Question 16

If debits = credits, the ledger is…

Answer 16

“Balanced”

Question 17

If debits ≠ credits, the ledger is…

Answer 17

“Out of balance”

Question 18

T or F: The date on a trial balance is a specific day (e.g. November 30, 2022)

Answer 18

True

Question 19

If a ledger account has a zero balance, is it included on the trial balance?

Answer 19

No

Question 20

T or F: Even if debits = credits, there may be errors

Answer 20

True (e.g. the wrong accounts may be debited / credited)

Question 21

Why don’t accountants erase or whiteout mistakes?

Answer 21

Because it can lead to Auditors being suspicious of
fraudulent activities

Question 22

To correct an error found immediately…

Answer 22

Strike through (cross out) the letters or numbers and write the correct ones immediately above.

Question 23

What are correcting entries?

Answer 23

Entries to correct errors that were made when transactions were recorded.

Question 24

When are these types of errors found?

Answer 24

At a later point in time (not immediately)

Question 25

T or F: Correcting Entries must be journalized and posted before preparing Closing Entries

Answer 25

True

Question 26

Original journal entry:
DR → Supplies
CR → Cash

Debit to supplies is incorrect. It should have been a debit to equipment.

Credit to cash is correct.

What is debited / credited in the correcting entry?

Answer 26

DR → Equipment
CR → Supplies (to cancel the incorrect debit entry)

Question 27

4 reasons a trial balance may not balance

Answer 27

1. Amounts are entered incorrectly
2. Amounts are transferred to the wrong accounts
3. Amounts are not calculated properly
4. Amounts are not posted at all

Question 28

3 strategies for finding errors

Answer 28

1. Check journal & ledger
2. Look for transposition errors (caused by changing the order of digits when transferring it from one place to another)
3. Decimal point errors (e.g. 1.13 was entered at 11.3)