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?