CH2: ACCOUNTING CYCLE (DURING THE PERIOD)

the sum of accounts with debit balances must equal

the sum of the accounts with credit balances

Samson Corporation issues common stock for $25000 cash and uses some of the proceeds to purchase equipment for $10000 cash. Sampson also purchases $4000 of supplies on account. After recording these transactions total assets are

$29000 Issuing common stock increases assets by $25000 (cash) and increases equity (common stock). Purchasing equipment for cash decreases one asset and increases another asset, so there is no change in assets. Purchasing supplies on account increases assets and increases accounts payable. $25000 + ($10000 - $10000) + $4000 = $29000 total assets

steps for measuring transactions

1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal 5. Post the transaction to the general ledger

three steps for analyzing the effect of transactions

1. determine one account in the accounting equation that will increase or decrease 2. determine a second account in the accounting equation that will increase or decrease 3. confirm that assets are equal to liabilities plus stockholders' equity

date

A proper journal entry includes the _______, the account and amount debited, the account and amount credited, and a brief explanation of the transaction.

journal

a chronological record of all economic events affecting a firm

general ledger

a collection of accounts used to keep track of increases and decreases in financial position elements

chart of accounts

a list of all account names used to record transactions of a company

trial balance

a list of all accounts and their balances at a particular date showing that debits equal credits

an account should have a/n

account title account number a place for the date of the transaction two columns for debits and credits

select the accounts that require a debit entry to increase the account

advertising expense account receivable supplies

t-account

an account that is used informally for analysis instead of drawing a formal general ledger account

internal transaction

an event that affects the financial position of the company but does not include an exchange with a separate economic entity

if a transaction decreases cash by $100, the balance sheet will balance if

another asset is increased a liability is decreased

correct order of the items found on the balance sheet

assets liabilities stockholder' equity

accounting equation

assets = liabilities + stockholders' equity

accounts receivable

assets in the balance sheet

Slim purchases equipment with cash. The accounts affected are

cash and equipment

deferred revenue

cash received from customers for services to be performed in the future

the type of information included in an account includes

columns for increases and decreases the account title

which of the following are stockholder equity accounts

common stock retained earnings

expense

cost of conducting business during the period

accounts on the right side of the accounting equation are increased with a

credit

stockholders' equity accounts normally have a

credit balance

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include

credit common stock debit to cash

To increase an expense account, you should _________ the expense account

debit

accounts on the left side of the accounting equation (assets) are increased with a ___________ to the account

debit

Inwood Corporation receives $36000 in advance from customers for services to be performed over the next three years. Which of the following is used to record this transaction?

debit cash; credit deferred revenue

a proper journal entry will have which account titles and amounts listed first?

debits

Expenses ______________ retained earnings; therefore, to increase any expense, one would ______________ the expenses account.

decrease; debit

After the accountant analyzes the impact of a transaction on the accounting equation, the next step in the measurement process is to

determine the accounts to debit and credit

dividend

distribution of cash to stockholders

The acronym DEALOR can be used to remember debits and credits. The three types of accounts that require a debit entry to increase the accounts (represented by the DEA in the acronym) are

dividends expenses assets

three components of retained earnings

dividends expenses revenues

internal transactions

earning revenues after cash is received in advance from customers using supplies purchased and paid for last month

ledger

includes the list of transactions affecting each individual account and the account's balance

What effect does revenue have on retained earnings?

increases

accounting transactions are classified as

internal and external transactions

external transaction

involves an exchange between the company and a separate economic entity

methods for posting journal entries computerized system

journal entries are instantly posted to the general ledger

methods for posting journal entries manual system

journal entries are posted periodically to the general ledger

two roles of financial accounting

measure business activities of the company communicate information to external parties for decision making purposes

Shiver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

notes payable increases cash increases

accounting cycle

refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers

posting

process of transferring information from the journal to the ledger

examples of external transactions

purchasing inventory form suppliers paying salaries to employees borrowing money from the bank

prepaid rent

rent paid in advance and classified as an asset

dividend

represents a payment of cash to the stockholders of a company

debit

represents the left side of the account in a double-entry accounting system

credit

represents the right side of an account

revenue

services performed for customers on account

a separate journal

used to post transactions and provides a summary of the effects of all transactions for a particular item

Which accounts require a debit entry to increase the account?

utility expense cash