Certified Bookkeeping Professional Study Guide

What are the two main types of Adjusting Journal Entries?

Accruals, and Deferrals.

Step 6

Adjusting Entries

Adjusting Journal Entry

Align Revenues and Expenses to the correct time period. These are made at the end of a period to correct accounts before financial statements are generated.

Average Cost Method

Also known as the Weighted-Average Method.

What correctly identity's accounts with their "natural account balance".

Assets accounts and expense accounts have natural "debit" balances. Revenues, liabilities and stockholder's equity accounts have natural "credit" balances.

Which two accounts have debit balances as the "natural account balance"?

Assets and Expenses

You are reading a General Ledger that was generated by accounting software. What information should you expect to find for each entry?

Assets, Liabilities, Equity, Income and Expenses

Which financial statement reports a company's assets?

Balance Sheet

Double-Declining Balance Depreciation Method

Depreciates the asset at twice the percentage rate so more depreciation expenses in the early years of an asset's useful life.

Which three are the components of the Accounting Equation?

Equity, Assets, Liabilities

Step 7

Financial Statements

Step 1

Identify Transactions

How can a company adjust its inventory balance?

Inventory Adjustment Entries

Deferrals

Receipts of assets or payments of cash in advance of revenue or expense recognition.

Defferal

Receipts of assets or payments of cash in advance of revenue or expense recognition.

Step 2

Record Transactions as Journal Entries

Accrual Basis

Revenue and expenses are recognized and recorded when they occur.

Accrual

Revenues earned or expenses incurred that have not been previously recorded.

Accruals

Revenues earned or expenses incurred that have not been previously recorded.

Balance Sheet

Shows a business's assets, liabilities and owners' equity at a specific point in time.

Statement of Cash Flow

Shows the money coming in and going out of a business as it relates to operating, investing and financing activities during a specific period of time.

Statement of Equity

Shows the opening balance and ending balance of earned profits, dividends, inflow from shareholders, and payouts to shareholders.

Income Statement

Shows the revenues, gains, expenses and losses in both operating and non-operating activities of a business during a specific period of time.

A public bookkeeper has responsibilities to which three parties?

Society, the bookkeeping and accounting profession, and the employer.

Sum of Years' Digits Depreciation Method.

Uses a ratio. The numerator is the years left in the asset's useful life, and the denominator is the sum of the years in the asset's original useful life.

Book Value, Accumulated Depreciation Method

Uses an asset's value minus its accumulated depreciation.

Current Liabilites

Utilities, taxes, payments toward long-term debts, interest payments and payroll.

In double-entry accounting, what are T-Accounts?

Visual structures used in the general ledger to keep Debits and Credits separated.

Assets

What the business owns that can be converted into cash.

When should a company adjust its inventory balance?

When the physical count does not match inventory balance on the books.

Step 4

Calculate Unadjusted Trial Balance

Step 8

Closing

Units of Production Depreciation Method

Commonly used by manufacturers, this method calculates depreciation based on the number of units produced in a particular year.

Step 5

Corrective Adjustments Worksheet

You are reading a Journal that was generated by accounting software. What information should you expect to find for each transaction?

Date, description, amount, and account, debit, credit.

Which two statements demonstrate an understanding of T-Accounts?

Debits increase asset or expense accounts, while credits decrease them, and debits decrease liability, revenue or equity accounts, while credits increase them.

Cash Basis

Line items aren't documented until money exchanges hands.

Depreciation Schedule

Lists the dollar amount of depreciation per year based on the factors listed and the depreciation method.

What accurately describes Merchandise Inventory?

Merchandise Inventory is a current asset, and Merchandise Inventory is an account that reflects the amount paid for products yet to be sold.

Equity

Money generated by a business or put into the business by its owners.

Accounts Receivable

Money owed the business in the short-term.

Liabilities

Monies the business owes to others.

Two rules of a certified bookkeeper's code of ethics:

Notify clients of situations that may be illegal, and always keep client's financial information confidential.

Useful Life

Number of years that the company will use the asset for the business.

Step 3

Posting to the General Ledger

What financial statement will show the bank the assets of the company?

The Balance Sheet

Which two statements describe how double-entry works in most accounting software?

The bookkeeper enters transactions and categorizes those transaction into the right accounts, the software records the debits and credits, and financial statements are generated automatically.

Modified Accelerated Cost Recovery System (MACRS)

The depreciation method used for tax purposed because it is required by the IRS.

Salvage Value

The dollar amount that the company can sell the asset for at the end of its useful life. In many cases, the salvage value is zero.

Straight-Line Depreciation Method

The most common type of depreciation. Simply divide the asset's depreciable base by the number of years of useful life.

Depreciable Base

Total cost can depreciate over the asset's useful life. Calculated by subtracting the cost of the asset by the salvage value.