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