Accounting Midterm
how can accounting errors be detected?
1. Search for missing amounts 2. Columns aren't equal 3. Divide by 9 to see if columns are transposent
What is an account?
A detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period.
What is the ledger?
A grouping of the T-accounts, along with their balances
What is a trial balance?
A list of accounts with their balance- assets then liabilities than owner equity followed by revenue and expense account. Retained earnings is beginning balance account balances are listed in either the debit or credit column and the columns are totaled. should be equal
Accurals
Adjusting entries for either accrued revenues or accrued expenses
Historical Cost Principle
Assets recorded are actual cost
Temporary Account
Balance sheet accounts only around for 1 year
Permanent Account
Balance sheet accounts that get carried on to the next period.
What is a Journal?
Chronological order of business transactions; where transactions are recorded
What is a T-account?
Debit entries on the left credit on the right
What are the rules of debits and credits?
Debits increase assets, dividends and expense accounts Credits increase liabilities, Common Stock, and RE Revenue increases retained earnings and expenses+ dividends decreases
what are the typical types of accrual accounting that require adjusting?
Deferrals COGS Depreciation Accruals
What does a trial balance prove?
Equal debits and credits have been recorded
what is the double entry system?
Every entry has an equal entry
What is the most logical order for a financial statement?
Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows
How do the income statement, statement of retained earnings, balance sheet, and cash flow statement tie to each other?
Net income from IS goes to RE, Beginning and ending balances of RE goes to stockholders equity, beginning and ending cash flows are shown on cash flow statement
Ways a business can be organized?
Proprietorship Partnership Corporation
How can the trial balance be used?
The financial statements are prepared from the trial balance
Why are adjusting entries necessary?
To bring accounts up to date and to follow accrual accounting
what occurs during posting?
Transactions are posted or copied from the journal to the ledger (always in that order). A balance is calculated for each account in the ledger.
Entity Assumption
each organization is separate
Continuity Assumption
entity will remain in business
stable monetary unit assumption
ignore effects of inflation
Deferals
prepaid expenses and unearned revenues