Week 3 and 4 Flashcards
What is the accounting cycle? (5)
Refers to the whole accounting process consisting of:
-Recording
-classifying
-analyzing
-summarizing
-reporting
The process is repeated every year.
What activities are done in the recording phase of accounting? (2)
-Journalizing
-Posting
What activities are done in the reporting phase of accounting? (3)
- extracting a trial balance
- year-end adjustments
- preparation of financial statements
What is journaling? (3)
-A chronological record of business transactions in form of debits and credits.
-All transactions are first journalized before posting them to the ledger accounts.
-The journal provides a basis for posting the transactions to the ledger accounts.
What are the types of journals? (2)
-Special journals-records frequently recurring transactions e.g. sales and purchases journals.
-General journal- records all transactions which are not recorded in special journals.
What information is in records? (7)
-The purchase and sale of fixed assets on credit
-Writing off Bad debts
-Correction of errors in the ledger accounts
-Opening and Closing entries for a business
-Adjustments to any entries in the ledgers.
-Depreciation of assets
-Bank loans, interest and other charges
What is a ledger?
A ledger is a book that contains the entire group of accounts of a business.
What is an account?
An account is a record for each transaction that is carried out in a business and records the increases or decreases of a specific item.
**Account is abbreviated as A/c takes the form of a T
What does an account record? (4)
-The account title e.g. sales A/c
-The date of the transaction
-The details of the transaction.
-The monetary value of that transaction.
What is a debit and credit in an asset account?
-A debit (Dr) is an increase in an asset a/c
-A credit (Cr) is a decrease in an asset a/c
What is a debit and credit in a liability account?
-A debit (Dr) is a decrease in the liability a/c
-A credit (Cr) is an increase in the liability a/c
What is a debit and credit in a capital account?
-A debit (Dr) is a decrease in the liability a/c
-A credit (Cr) is an increase in the liability a/c
What is a debit and credit in an expense account?
-A debit (Dr) is an increase in the expense a/c
-A credit (Cr) is a decrease in the expense a/c
**Most entries in expense accounts are debit entries. Credit entries are mainly for adjustments, corrections or closing the accounts.
What is a debit and credit in a revenue account?
A debit (Dr) is a decrease in revenue.
A credit is an increase in revenue.
**Most entries in revenue a/cs are credit entries. Debit entries are made to adjust and close the accounts at year end and to correct errors.
What’s a trial balance?
A trial balance is a list of all debit and credit balances in the ledger accounts.
How do you calculate account balance in a trial balance?
The difference between all debit and credit balances.
How do you know if a business has a debit balance?
If total debits > than total credits a/c has a debit balance
How do you know if a business has a credit balance?
If total credits > than total debits, a/c has a credit balance.
What happens when total debits = total credits?
If total debits = total credits, a/c has a nil balance and should not appear in a trial balance.
What’s the purpose of a trial balance? (2)
-To check the arithmetical accuracy of the double entries in the ledger
-To provide a list of balances for the preparation of the final accounts.
**It is extracted annually for use in the preparation of financial statements or as frequently as required.
What are errors that affect the trial balance? (4)
-Arithmetical errors in the trial balance.
-Errors of transposition eg 39 instead of 93. They result in either understatement or overstatement.
-Errors caused by entries on the wrong side of an account.
-Errors caused by the omission of one half of the double entry ie having a single entry instead of double.
