Chapter 3 ( The Accounting Information System)

Front 1

What is accounting information system?

Back 1

collects and processes transactions data and then disseminates the financial information to interested parties

Front 2

What is an event?

Back 2

- happening or consequence

- source or cause of change in Assets, Liability, or Equtiy

- may be external or internal

Front 3

What is transaction?

Back 3

external event involving a transfer or exchange between 2 or more entities

Front 4

What is an account?

Back 4

systematic arrangement that shows the effect of transactions and other events on a specific element

Front 5

What are real accounts?

Back 5

- permanent

- asset, liability, and equity accounts

- appear on the balance sheet

- aren't closed

Front 6

What are nominal accounts?

Back 6

- revenues, expense, and dividend accounts

= except dividends, appear on the income statement

- are closed periodically

- temporary accounts

Front 7

What is a ledger?

Back 7

the book containing the accounts

Front 8

What is a general ledger?

Back 8

collection of all the asset, liability, owner's equity, revenue, and expense account

Front 9

What is a subsidiary ledger?

Back 9

contains the details related to a given general ledger account

Front 10

What is a journal?

Back 10

- book of original entry

- where the company initially records transactions and selected other events

Front 11

What is posting?

Back 11

process of transferring the essential facts and figures from the book of original entry to the ledger accounts

Front 12

What is trial balance?

Back 12

list of all open accounts in the ledger and their balances

Front 13

What is an adjusted trial balance?

Back 13

trial balance taken immediately after closing entries have been posted

Front 14

What are adjusting entries?

Back 14

entries made at the end of an accounting period to bring all accounts up to date on an acrurral basis, so that the company can prepare correct financial statements.

Front 15

What are financial statements?

Back 15

statements that reflect the collection, tabulation, and final summarization of accounting data.

Front 16

What are closing entries?

Back 16

formal process by which the enterprise decrease all nominal accounts

Front 17

What is double-entry accounting?

Back 17

- company records the dual effect of each transactions to appropriate accounts

- proves the accuracy of the recorded amounts

- sum of all debits equal sum of all credits

Front 18

What is the accounting equation?

Back 18

Assets = liabilities + retained earnings + revenue - expense - dividends

Front 19

What is the accounting cycle?

Back 19

accounting procedures to record transactions and prepare financial statements

Front 20

What are the steps to the accounting cycle?

Back 20

1. Journalization

2. Posting

3. Trial Balance

4. Adjustments

5. Adjusting Trial Balance

6. Financial Statements

7. Closing entry

8. Post-closing trial balance

9. (optional) reversing

Front 21

What are external events?

Back 21

involve interaction between an equity and its environment, such as a transaction with another entity.

Front 22

What are internal events?

Back 22

occur within an entity

Ex: consuming raw materials

Front 23

What are special journals?

Back 23

- summarizing transaction possessing a common characteristic

- reduces bookkeeping time.

Front 24

What are prepaid expenses?

Back 24

- assets paid for and recorded before a company uses them

- expire with the passage of time or consumption

Front 25

What is depreciation?

Back 25

allocates the cost of an asset to expense over its useful life in a rational and systematic manner

Front 26

What is a contra asset account?

Back 26

- offsets and asset account on the balance sheet

EX: accumulated depreciation

Front 27

What is book value?

Back 27

difference between cost of a depreciable asset and its related accumulated depreciation

Front 28

What are unearned revenues?

Back 28

- revenues received in cash and recorded as liabilities before a company earns them

EX: rent magazine subscriptions

Front 29

What is accrued revenue?

Back 29

revenues, not yet received in cash or recorded at the statement date

Front 30

What are accrued expenses?

Back 30

expenses but not yet paid or recorded at the statement date

Front 31

What is the closing process?

Back 31

- decrease in the balance of nominal accounts to 0 in order to prepare the accounts for the next period's transactions

- transfer all of the revenue and expense accounts balance to a clearing or suspense account called Income Summary

Front 32

What are reversing entries?

Back 32

- made at the beginning of the next accounting period

- exact opposite of the related adjusting entry made in the next previous period

Front 33

What is the accounting process?

Back 33

1. Identification and measurement of business transactions and other costs

2. Journalization

3. Post to ledger

4. Prepare worksheet

5. Prepare financial statements

6. Prepare and post adjusting entries

7. Prepare and post closing entries

8. Prepare post-closing trial balance

9. Prepare and post reversing entries

Front 34

- have occured

- affected the financial position of the business

- can be measured in monetary terms

- relevant and reliable

Back 34

What are the characteristics of accounting events?

Front 35

What is journalization?

Back 35

- double-entry system

- balance sheet and T-accounts

- increase and decrease in the accounts

Front 36

What is double-entry stystem?

Back 36

each transaction affects at least 2 accounts and the balance of the accounting equation must be maintained

Front 37

1. Transaction occurs

2. Source documents prepared

3. Transaction analysis takes place

4. Transaction entered into the journal

5. amounts posted to the ledger

Back 37

What is the flow of accounting data?

Front 38

What is acrrural accounting?

Back 38

- time period concept, the revenue recognition and matching principles

- has adjusting entries

Front 39

What is cash-basis accounting?

Back 39

- accountant does not record a transaction until cash is received or paid

- not acceptable for financial reporting

Front 40

What are adjusting entries?

Back 40

- financial reports are prepared periodically, so these are necessary, due to the periodicity cocnept

- based on revenue recognition, they are prepared at the end of a period to recognize revenues earned during the period but not yet recorded

- based on the matching principle, the accrued expenses and estimated expenses are recorded at the end of a period.

Front 41

- deferred

= prepaid expenses

= unearned revenue

- accurals

= accrued revenues

= accrued expenses

Back 41

What are the types of adjusting entries?

Front 42

What are prepaid expenses?

Back 42

expenses paid in cash and recorded as assets, before they are used or consumed

Front 43

What are unearned revenues?

Back 43

revenue received in cash and recorded as liabilities before they are earned

Front 44

What are accrued revenues?

Back 44

revenues earned but not yet received in cash or recorded

Front 45

What is accrued expenses?

Back 45

expenses incurred but not yet paid in cash or recorded