Accounting Process
Voucher
A business document or written authorization for every cash disbursement.
Net income
A credit balance in the Income Summary account represents:
Net loss
A debit balance in the Income Summary account represents:
Subsidiary Ledger
A device used in storing the details of certain general ledger accounts.
Check Register
A journal where all checks are issued for payment are recorded.
Voucher Register
A journal where all vouchers are recorded in numerical sequence.
Liability Method
A liability account is credited for the receipt of income.
Trial Balance
A list of general ledger accounts with their respective debit or credit balance. A control device that eliminates accounting errors.
Chart of Accounts
A listing of all the entity's general ledger accounts in a systematic form.
Postclosing trial balance
A listing of general ledger accounts and their balances after closing entries have been made. It contains entirely of real or permanent accounts.
Worksheet
A multicolumn sheet of paper that accountants use in compiling and summarizing the information necessary for the preparation of financial statements.
Voucher System
A system of internal control over all cash disbursements.
Adjunct Accounts
Accounts which are added to the related account
Accruals, Deferrals using the expense and income methods
Adjustments that normally require reversing entries at the beginning of a new period:
Account
An accounting device used in summarizing the effects of transactions on each asset, liability, equity, revenue and expense.
True
An entity uses the general journal to record all transactions that do not fit the special journals which also include the adjusting, closing, and reversing entries. True or False?
Transplacement
An error in placing of a decimal point.
Error of Omission
An error in which a transaction is not recorded.
Transposition
An error in which the figures are interchanged.
Income Method
An income account is credited for the receipt of income.
Net loss
Balance sheet: Total debits < Total credits
Net income
Balance sheet: Total debits > Total credits
Simple Journal Entry
Consists of one debit and one credit
Compound Journal Entry
Consists of two or more debits or two or more credits
1. Asset 2. Liability 3. Equity 4. Income 5. Expense
Each account is a record of information about:
Sales Journal, Purchases Journal, Cash Receipts Journal, Cash Disbursements Journal
Examples of Special Journals:
Accounts Receivable Subsidiary Ledger, Accounts Payable Subsidiary Ledger, Shareholders' Subsidiary Ledger, Cash Subsidiary Ledger
Examples of subsidiary ledgers:
True
General ledger accounts are actually the controlling or the main accounts supported by the details in a subsidiary ledger. True or False?
1. Provide a place where adjusting entries can be made informally 2. Provide orderly means whereby each account can be classified according to the financial statements 3. Provide a balancing mechanism that help uncover errors
How does a worksheet facilitate the preparation of the financial statements?
Net income
Income statement: Total debits < Total credits
Net loss
Income statement: Total debits > Total credits
1. Capital (for sole proprietorship) 2. Retained Earnings (for corporation)
Income summary accounts are closed to the:
Real Account
It represents assets, liabilities, and equity. Also known as permanent accounts because they are carried from one period to another.
Nominal Accounts
It represents revenue and expenses. Also known as temporary accounts because they are closed after every accounting period.
1. Ending inventory 2. Doubtful accounts 3. Depreciation 4. Prepaid expense 5. Accrued expense 6. Deferred Income 7. Accrued Income
Items that normally require adjusting entries:
1. Transposition 2. Transplacement 3. Error of omission
Kinds of errors:
Adjusting Entries
Made at the end of the accounting period in order to split mixed accounts or to bring accounts up to date. They allocate revenue and expenses between current and future periods.
Normal Balance
May either be a debit or credit, depending on which side increases the amount.
All payments of cash for any purpose are recorded
Nature of a cash disbursements journal
Receipts of cash from any source are recorded
Nature of a cash receipts journal
Purchases of merchandise on credit are recorded
Nature of a purchases journal
Only sales of merchandise on credit are recorded
Nature of a sales journal
Income summary
Nominal accounts are transferred to a clearing account known as ___________.
Contra Accounts
Offset accounts or accounts which deduct from the related account
1. Transaction Date 2. Accounts and amounts debited 3. Accounts and amounts credited 4. Brief explanation
Parts of a general journal entry:
Special journals facilitate the efficient recording of large number of similar transactions
Purpose of special journals:
1. Provides evidence that total debits and total credits equal in a general ledger. 2. Provides information that help accountants formulate adjustments.
Purposes of a trial balance:
Debit
Refers to the left side of an account.
Credit
Refers to the right side of an account.
Normal Credit balance
The account is increased when credited and decreased when debited.
Normal debit balance
The account is increased when debited and decreased when credited.
Balance
The difference of both sides of an account.
1. Voucher 2. Voucher Register 3. Check Register 4. Unpaid Vouchers File 5. Paid Vouchers File
The elements of a voucher system:
Asset Method
The original payment is debited to an asset account.
Expense Method
The original payment is debited to an expense account.
Reversing entries
They are made at the beginning of the new accounting period in order to transfer all accrued and prepaid items established by adjusting entries to the nominal accounts that are to be used in recording transactions during the new period. The purpose is to simplify recording of transactions.
Closing entries
They are made at the end of an accounting period after adjusting entries and financial statements have been prepared for the purpose of closing all nominal or temporary accounts.
Nominal Accounts
They are temporary equity accounts.
Mixed Accounts
They represent those with real and nominal element
1. Real 2. Nominal 3. Mixed
Three classes of accounts:
1. Expense Method 2. Asset Method
Two methods of recording expenses:
1. Income Method 2. Liability Method
Two methods of recording income:
Preparing the worksheet, preparing the postclosing trial balance, and preparing the reversing entries
What are the optional steps of the accounting process?
1. Recording phase 2. Summarizing phase
What are the two phases of the accounting process?
1. Business/Source Documents 2. Books of Original Entry/Journals 3. Books of Final Entry/Ledgers
What constitute the accounting records of an entity?
A chronological record of transactions
What is a journal?
Group of accounts
What is a ledger?
1. Analyzing business transactions 2. Journalizing 3. Posting 4. Preparing unadjusted trial balance 5. Preparing adjusting entries 6. Preparing financial statements 7. Preparing closing entries 8. Preparing postclosing trial balance 9. Preparing reversing entries
What is the accounting cycle?
1. Analyzing business transactions 2. Journalizing 3. Posting
What is the recording phase of the accounting process?
4. Preparing unadjusted trial balance 5. Preparing adjusting entries 6. Preparing financial statements 7. Preparing closing entries 8. Preparing postclosing trial balance 9. Preparing reversing entries
What is the summarizing phase of the accounting process?
They measure activities that have occurred at a given period of time.
Why do we close nominal accounts?