Chapter 3
Study online at quizlet.com/_21y9eu
1.
10 column
worksheet
- Provides an orderly format for the
accumulation of information necessary for the
preparation of financial statements
- Does not replace any financial statements nor
does it alter any of the steps in the accounting
cycle
2.
The
accounting
information
system
Collects and processes transaction data and
then disseminates the financial information to
interested parties
3.
Accrual
basis of
accounting
Revenue is recognized when it is earned and
expenses when incurred without regard to the
time of receipt or payment of cash.
4.
Accruals
Accrued revenues, accrued expenses
- Rev/exp. first, cash later
- Recognized in the current period for which the
corresponding payment or receipt of cash is to
occur in a future period
- Estimated items are expenses such as bad
debts and depreciation whose amounts are a
function of unknown future events or
developments
reversal entries are only for accrued AJEs
5.
Accrued
expenses
- Expenses incurred but not yet paid in cash or
recorded
- i.e. interest, rent, taxes, and salaries
- Adjusting entry: debit expense, credit liability
6.
Accrued
revenues
- Revenue for services performed, but not yet
received in cash or recorded
- Adjusting entry: debit asset, credit revenue
7.
Adjusted
trial
balance
Shows the balance of all accounts at the end of
the accounting period to prove the equality of
the total debit balances and the total credit
balances in the ledger after all adjustments
Adjusting
entries
- Made at the end of the accounting period to
bring all accounts up to date on an accrual
basis so that correct financial statements can be
prepared
- Necessary to achieve a proper matching of
revenues an expenses in the determination of NI
for the current period and to achieve an
accurate statement of assets and equities
existing at the end of the period
- Affect one real account (asset, liability, or
equity) and one nominal account (revenue or
expense)
8.
9.
Basic
accounting
equation
Assets = Liabilities + Stockholders' Equity
10.
Cash basis of
accounting
Revenue is recognized only when cash is
received and expenses are recorded only
when cash is paid.
11.
Closing
process
- Nominal (revenues and expenses)
accounts should be reduced to zero in
preparation for recording the transactions of
the next period
- Requires recording and posting of closing
entries
- All nominal accounts are reduced to zero
by closing them through the Income
Summary account
- The net balance in the Income Summary
account is equal to the NI or NL for the
period
- The NI or NL is transferred to
stockholders' equity by closing the Income
Summary account to Retained Earnings
12.
A company
can directly
prepare its
financial
statements
from
the adjusted trial balance
13.
Debits and
credits
Assets and expenses are increased by
debits and decreased by credits. Liabilities,
owners' equity, and revenues are decreased
by debits and increased by credits.
14.
Deferrals
Prepaid expenses, unearned revenues
- Cash first, rev/exp. later
- Recognized at a later date than the point
when cash was originally exchanged
15.
Double-entry
accounting
Refers to the process used in recording
transactions
16.
General
journal
A chronological listing of transactions
expressed in terms of debits and credits to
particular accounts; no distinction made
concerning the type of transaction involved
17.
General
ledger
A book that usually contains a separate
page for each account
18.
IFRS insights
- Since the passage of SOX, companies that
trade on U.S. exchanges are required to
place renewed focus on their accounting
systems to ensure accurate reporting
- Converting to IFRS requires retrospective
application (recasting prior financial
statements on the basis of IFRS) to provide
financial statement users with comparable
information
19.
Journalizing
Transactions are initially recorded in a journal, sometimes referred to as the book of original entry
20.
Post-closing trial balance
Third trial balance; shows that equal debits and credits have been posted properly to the Income
Summary account
21.
Posting
Transferring amounts from a journal to the ledger
22.
Prepaid expenses
- Deferral; expenses paid in cash before they are used
- i.e. insurance, supplies, advertising, and rent
- Adjusting entry: debit expense, credit asset
23.
Reversing entries
- Made at beginning of next accounting period
- Exact opposite of the adjusting entry made in previous period
- Optional
- The entries subject to reversal are the adjusting entries for accrued revenues and accrued
expenses.
24.
Specialized journal
Used to accumulate transactions possessing common characteristics
25.
Summarized steps of accounting
cycle
1. Enter transactions of period in appropriate journals
2. Posting
3. Unadjusted trial balance
4. Prepare adjusting journal entries and post them to ledger(s)
5. Adjusted trial balance
6. Prepare financial statements from adjusted trial balance
7. Prepare closing entries and post them to ledger(s)
8. Post-closing trial balance
9. Optional: Prepare reversing entries and post them to the ledger(s)
26.
Trial balance
A list of all open accounts in the general ledger and their balances
27.
Unearned revenues
- Deferral; cash received before services are performed
- Adjusting entry: debit liability, credit revenue