Accounting Test #2

Front 1

What is the purpose of an accounting information system?

Back 1

to identify economic events to be recorded, to measure and record those events, and to process the resulting information so that financial statements can be prepared.

Front 2

An _____________ is any economic event that affects specific asset, liability, or equity accounts at the time of the event.

Back 2

accounting transacation

Front 3

What is the main function of an account?

Back 3

to accumulate a value for a specific item based on transactions that affect that item.

Front 4

Does double-entry system that each transaction is recorded twice?

Back 4

No because all accounting transactions affect at least two accounts so that the accounting equation remains in balance.

Front 5

What does a chart of accounts contain?

Back 5

the account names or all of the accounts that a company uses to record accounting information and a numerical reference for each account.

Front 6

Why is the statement debit means “increase” and credit means “decrease” false?

Back 6

B/c debit means the left side and credit means the right side of an account.

Front 7

Transactions are first recorded in the ____________.

Back 7

journal

Front 8

A _________ is a collection of accounts and their balances.

Back 8

ledger

Front 9

The input for the ledger comes from the __________.

Back 9

journal

Front 10

In a ___________, asset accounts are listed first, followed by liability accounts, equity accounts, and then revenue, expense, and dividend accounts.

Back 10

trail balance

Front 11

Why must all accounting transactions affect at least two accounts?

Back 11

So that the basic equation (A=L+E) remains in balance.

Front 12

What is the normal balance for assets?

Back 12

debit

Front 13

What is the normal balance for liabilities?

Back 13

credit

Front 14

What is the normal balance for common stock?

Back 14

credit

Front 15

What is the normal balance for retained earnings?

Back 15

credit

Front 16

What is the normal balance for dividends?

Back 16

debit

Front 17

What is the normal balance for expenses?

Back 17

debit

Front 18

What is the normal balance for revenue?

Back 18

credit

Front 19

Whichever side you _________ is the normal balance!

Back 19

increase

Front 20

What are three accounting transactions that do not involve cash?

Back 20

providing services on account to a customer, purchasing inventory on account from a supplier, and purchasing equipment by signing a note payable.

Front 21

What does a basic journal entry contain?

Back 21

the date of the transaction, the names of all the accounts affected by the transaction, an explanation of the transaction, and the dollar values involved.

Front 22

___________ refers to the process of transferring information from the journal to the ledger.

Back 22

Posting

Front 23

How can a trail balance that balances still be subject to error?

Back 23

B/c the transaction amounts could be recorded correctly but to the wrong accounts, or a transaction could have been completely omitted or recorded twice.

Front 24

What are three main purposes of a trail balance?

Back 24

to prove that total debit balances equal total credit balances, to summarize in one place all accounts and their respective balances, and to help in making any necessary adjustments to account balances at the end of the accounting period.

Front 25

Why are some economic events not considered accounting? Give example.

Back 25

B/c no asset, liability, or equity accounts are affected.
Ex. Hiring an employee

Front 26

What are the three characteristics of the accounting information system?

Back 26

identifying economic events, measuring and recording those events, and processing the resulting information so that financial statemnts can be prepared.

Front 27

__________ is a listing of a company's account titles.

Back 27

Chart of accounts

Front 28

_____________ are economic events that must be recorded in the financial statemnts b/c they affect assets, liabilities, and/or stockholder's equity.

Back 28

Accounting transactions

Front 29

When does accounting analysis occur?

Back 29

When you analyze the effect of business transactions on the basic accounting equation.

Front 30

Name the ten economic events that can occur.

Back 30

issuance of common stock, notes payable issued in exchange for cash, purchase of office equipment with cash, receipt of cash in advance from customer, services provided for cash, services rendered (and on account), payment of rent, purchase of insurance policy with cash, purchase of supplies on account, payment of dividends, and payment of cash for employee salaries.

Front 31

What decreases equity

Back 31

dividends and expenses

Front 32

The ____________ is an individual accounting record of increases and decreases in a specific asset, liability, or stockholder's equity item.

Back 32

account

Front 33

What three parts does the account consist of?

Back 33

the title of the account, a left or debit side, and a right or credit side.

Front 34

Name the three basic steps in the recording process?

Back 34

Analyze, Journalize, & Post.

Front 35

The ________ is an accounting record where the transactions are recorded in chronological order.

Back 35

journal

Front 36

___________ is transferring information from the journals to the general ledger accounts.

Back 36

Posting

Front 37

The ____________ is the entire group of accounts mainatined by a company and contains all the asset, liability, and stockholder's equity accounts.

Back 37

general ledger

Front 38

Name the two functions of a trail balance.

Back 38

It serves to prove the mathematical equality of debits and credits after posting and it aids in the preparation of financial statements.

Front 39

A ___________ is a list of accounts and their balances at a given time.

Back 39

trail balance

Front 40

What is the cash basis of accounting?

Back 40

Revenue recorded only when cash is received and expenses recorded only when cash is paid.

Front 41

The cash basis of accounting violates what?

Back 41

GAAP

Front 42

Accrual adheres to the ___________ and the ____________.

Back 42

revenue recognition principle and matching principle

Front 43

What is revenue recognition principle?

Back 43

Revenue recorded only when earned, not when cash is received.

Front 44

What is the matching principle?

Back 44

Expenses are recorded only when incurred, not when cash is paid.

Front 45

What are the four types of adjusting entries?

Back 45

deferred expense, deferred revenue, accrued expense, and accrued revenue.

Front 46

What is a deferred expense?

Back 46

Cash is paid before expense is used up.

Front 47

What are some examples of deferred expenses?

Back 47

insurance, rent, supplies, and depreciation.

Front 48

What is a deferred revenue?

Back 48

Cash is received before revenue is earned.

Front 49

A ____________ is nothing more than an asset-a resource to be used.

Back 49

deferred expense

Front 50

Deferred revenue always involves ____________.

Back 50

unearned revenue

Front 51

What is an accrued expense?

Back 51

Expense is used up before cash is paid.

Front 52

What are some examples of accrued expense?

Back 52

wages and interest

Front 53

What is an accrued revenue?

Back 53

Revenue is earned before cash is received.

Front 54

They owe us-
We owe them-

Back 54

accrued revenue and accrued expense.

Front 55

_____________ are assets that expire either with the passage of time or through use.

Back 55

Deferred expenses

Front 56

_____________ is when money has been received before the goods or services ae provided.

Back 56

Deferred revenue

Front 57

Deferred revenue and deferred expenses are considered ________________.

Back 57

prepayments

Front 58

You can start with the _____________ to find imformtion to adjust prepayments.

Back 58

trail balance

Front 59

______________ allocates the cost of an asset to expense over its useful life-Matching Principle.

Back 59

Depreciation

Front 60

Depreciation is an ____________.

Back 60

estimate

Front 61

Depreciation is ____________ of cost not valuation (current replacement cost).

Back 61

allocation

Front 62

Accumualted Depreciation has a normal ___________ balance.

Back 62

credit

Front 63

What is the formula for computing interest?

Back 63

face value of note *annual interest rate * time in term of one year=interest

Front 64

The adjusting trail balance is used to prove the equality of total debit and credit balances _______________________.

Back 64

after the adjusting entries have been made.

Front 65

_____________ can be easily prepared from the adjusted trail balance.

Back 65

Financial statements

Front 66

What do closing entries do?

Back 66

Transfer the temporary account balances to the stockholder's equity acconunt and reduce the balances in the temporary accounts to zero.

Front 67

You only close ___________ accounts which include _________, __________, and ____________.

Back 67

temporary; revenue, expense, & dividends accounts.

Front 68

You do not close _________ accounts which include __________, ___________, and _____________.

Back 68

asset, liability, and stockholder's equity.

Front 69

Name the steps in the accounting cycle.

Back 69

Analyze, Journalize, Prepare a trail balance, journalize & post adjusting entries, prepare an adjusted trail balance, prepare financial statements, journalize & post closing entries, and prepare a post-closing trail balance.

Front 70

The cash bsis of accounting wht two principles?

Back 70

matching & revenue recognotion

Front 71

At the beginning of a new accounting period, temporary accounts should have a ________ balance.

Back 71

zero

Front 72

Income on the cash basis of accounting is reported under Generally Accepted Accounting Principles as a company's csh flows from ___________ on the statement of cash flows.

Back 72

operating activities

Front 73

Name the four possible closing entries.

Back 73

1.A debit to service revenue and a credit to income summary.
2.A debit to income summary and a credit to all expenses.
3. Debit income summary and credit retained earnings. (vice-versa if net loss)
4. A debit to retained earnings and a credit to dividends.

Front 74

Every adjusting entry affects a ___________ and ___________.

Back 74

balance sheet; income statement

Front 75

In every adjusting journal entry, either ________ is debited or __________ is credited.

Back 75

expense; revenue