ACCOUNTING UNIT 1

A Ledger is:

A collection of records that summarizes, for each account, the effects of transactions. A simplified version is called a T-Account.

A journal is:

A record of each day's transactions. The book of original entry. Where journal entries are recorded.

The system of analyzing, recording, and summarizing the results of a business's activities and then reporting them to decision makers is known as:

Accounting

Adjusting entries involving Liabilities:

Are reported at amounts owed at the end of the current period that will require a future sacrifice of resources.

Adjusting entries involving Assets:

Are reported at amounts representing economic benefits that remain at the end of the accounting period.

The Balance Sheet is prepared after the Statement of Retained Earnings. What account types are on the Balance Sheet?

Asset, Liability & Equity

Which of the following is the Fundamental Accounting Equation?

Assets = Liabilities + Equity

Which of the following is true concerning a journal entry?

At least one Debit must be included At least one Credit must be included The Debit is always listed first The Credit is always listed last, and indented to the right Total Debit and Credit amounts must always be equal

When are adjusting entries reported?

At the end of an accounting period.

In a Deferral:

Cash precedes the economic activity.

A summary or listing of all the account names (in specific order) used to record financial results in the accounting system is:

Chart of Accounts

Which accounting system provides reports and information to external users?

Financial Accounting

GAAP is the set of rules and standards that regulate public accounting. GAAP stands for:

Generally Accepted Accounting Principles

depreciable base

Historical Cost - Salvage Value

The newest, most flexible legal form of an entity is:

Limited Liability Company (LLC)

The result of an income statement is:

Net Income/(Loss)

In Cash Basis Accounting:

Record revenue when cash is received and expense when cash is paid.

In Accrual Basis Accounting:

Record revenue when earned and expenses when incurred.

The Income Statement reports which two account types?

Revenue & Expense

You are going to school so that you can become:

The decision maker who understands and uses the financial information.

In an Accrual:

The economic activity precedes the exchange of cash.

What is a normal account balance?

The side the account increases on

Financial accounting must conform to Duality, sometimes being referred to as a "double-entry" system. What does this mean?

There will always be at least one Debit and one Credit for each transaction. Two accounts are always involved in each transaction. The total Debits and total Credits from a transaction must balance.

An event or activity that has a direct economic effect on the assets, liabilities, and stockholders' equity of a business is:

Transaction

To record depreciation, depreciation expense is debited; what account is credited?

accumulated depreciation

Select the three account types that have a normal debit balance:

assets, expense, distribution

List the 6 account types used in financial accounting:

assets, liabilities, expenses, revenue, investments, distributions

List the 4 steps used in the closing process in their proper order.

close all revenue and expense accounts to income summary close income summary to retained earnings close distributions to retained earnings

Accumulated Depreciation increases on which side?

credit

Asset

economic resources owned or controlled by a company

useful life

expected amount of time the company plans on using the asset for

salvage/residual value

expected value the asset can be sold or scrapped for at the end of its useful life

Match each step in the process of analyzing transactions to the order each step is performed:

identify account names identify account type identify whether each account is increasing or decreasing identify whether each account is increasing or decreasing by debit or credit

Place the 5 steps of Accrual Basis Revenue Recognition in order:

identify the contract identify the sellers performance obligation determine the transaction price allocate the transaction price to performance obligations recognize revenue when each performance obligation is satisfied

The Statement of Retained Earnings is prepared after the Income Statement. What account types are reported on the Statement of Retained Earnings?

investment & distribution

Stockholder's equity is split into 4 subcategories, referred to as account types

investment, distribution, revenue, expense

List the three account types that have a normal credit balance:

investment, revenue, liability

Debit means:

left

Liability

measurable amounts owed by the company, debts

Equity

owners claims on the company

The Income Statement is the first financial statement prepared. What account types are on the Income Statement?

revenue & expense

Credit means:

right

Which accounts are closed at the end of each accounting period?

temporary

Historical Cost

the purchase price of an asset

A contra account is an account that has an opposite balance from the account it is opposing.

true

Adjustments are entries necessary at the end of each accounting period to report revenues and expenses in the proper period and assets and liabilities at appropriate amounts.

true

The time period assumption allows time to be broken into, and reported in smaller periods.

true