Fall 2011: Accounting Exam 1

Front 1

What does an accounting information system do?

Back 1

It collects and processes transaction data and then disseminates the financial information to interested parties. [Note: It does not have to be computerized but generally today it is.]

Front 2

What is the basic accounting terminology used in collecting accounting data?

Back 2

Event
Transaction
Account
Real Accounts
Nominal Accounts
Ledger
Journal
Posting
Trial Balance
Adjusting Entries
Financial Statements
Closing Entries

Front 3

What is an event?

Back 3

An event is a happening of consequence to the entity; it may be external or internal; it generally is the source or cause of changes in the elements of the financial statements

Front 4

What are the elements of financial statements?

Back 4

assets, liabilities, equity, revenue, expenses

Front 5

What is a transaction?

Back 5

A transaction is an external event involving a transfer or exchange between two or more entities.

Front 6

What is an account?

Back 6

An account is a place to keep up with the changes on a specific element.*
* Textbook: A systematic arrangement that shows the effect of transactions and other events on a specific element.

Front 7

Entities keep a separate account for each specific a_____, l_____, r_____, e_____, and e____.

Back 7

asset, liability, revenue, expense, and equity

Front 8

All information in an account MUST come from what?

Back 8

The journal.

Front 9

What is a T-account?

Back 9

A T-account is a pedagogical device used in the classroom. A T-account does not exist in the ‘real world,’ but accounts do exist.

Front 10

Accountants _____ in T-accounts and often do their ______ _______in T-accounts.

Back 10

think; problem solving

Front 11

What are Real Accounts?

Back 11

A real account (permanent account) is an asset, liability or permanent equity account.

Front 12

Are real accounts 'closed' at the end of an accounting period?

Back 12

No

Front 13

What are Nominal Accounts?

Back 13

A nominal (temporary) account is a revenue, expense, or temporary equity account (such as dividends).

Front 14

Are nominal accounts 'closed' at the end of an accounting period?

Back 14

Yes

Front 15

What is a ledger?

Back 15

A ledger is a collection of the accounts of a company. It can be a book (in a non-computerized accounting system) or a computer printout (in a computerized accounting system).

Front 16

What are the types of ledgers?

Back 16

General Ledger, Subsidiary Ledger

Front 17

True or false: Every company must have a general ledger.

Back 17

True

Front 18

What is a subsidiary ledger for?

Back 18

to keep up with details of a general ledger account

Front 19

What are the most common types of subsidiary ledgers?

Back 19

Accounts Receivable and Accounts Payable

Front 20

What is a journal?

Back 20

A journal (book of original entry) is a chronological list of all the recordable events that occur.*

*Textbook: Where the company initially records transactions and selected other events.

Front 21

Entering information in the journal is called?

Back 21

Journalizing

Front 22

Data from the journal is transferred to the?

Back 22

Ledger Accounts

Front 23

What is posting?

Back 23

Posting is the act of transferring information from the journal to the ledger.

It is the part of the accounting system where mistakes are often made in a non-computerized system. It is something a 6th grader can do.

Front 24

What is a trial balance?

Back 24

A trial balance is a list of all the accounts of an entity and their end-of-period balances. It proves the equality of debits and credits.

Front 25

What are some of the trial balances prepared?

Back 25

Initial Trial Balance
Adjusted Trial Balance
Post-closing Trial Balance

Front 26

What is an Adjusting Entry?

Back 26

An adjusting entry is an entry made at the end of an accounting period to ‘fix’ the books.*



*Textbook: An adjusting entry is made at the end of an accounting period to bring all accounts up to date on an accrual basis.

Front 27

Financial Statements are the e__ p_____ of the accounting system.

Back 27

end product

Front 28

Financial Statements are the e__ p_____ of the accounting system.

Back 28

end product

Front 29

The entire bookkeeping system is designed to produce financial statements that represent fairly the r_____ of o_____ and f_____ p_____ of an entity as of the end of and for an accounting period.

Back 29

results of operation; financial position

Front 30

What are four basic financial statements used to present the operating results and financial position of an entity (presented in the order prepared)?

Back 30

Income Statement (Statement of Operations)
Statement of Changes in Equity or sometimes simply a Retained Earnings Statement
Balance Sheet (Statement of Financial Position)
Statement of Cash Flows

Front 31

What are Closing Entry(ies)?

Back 31

Closing entries are used to formally close the nominal (temporary) accounts.

Front 32

Close means to what?

Back 32

Close means to bring the account balance to zero.

Front 33

Two of the most commonly employed words in accounting are “debit” and “credit.” These words means “l___” and “r___” respectively (and nothing more—they do NOT mean increase or decrease).

Back 33

"left";"right"

Front 34

When total debits equal total credits, the books are "i_ b_____.”

Back 34

"in balance"

Front 35

T-accounts are p______ devices that are used to represent ledger sheets.

Back 35

pedagogical

Front 36

Increases in Asset and Expense accounts are shown with an entry on the ___ side; therefore decreases are shown with an entry on the ___ side

Back 36

left; right

Front 37

Increases in Liabilities, Stockholders’ Equity and Revenue accounts are shown with an entry on the ____ side; therefore decreases are shown with an entry on the _____ side.

Back 37

right; left

Front 38

The accounting equation is an algebraic identity where
A = ?
L = ?
SE = ?

Back 38

A = Assets
L = Liabilities
SE = Stockholders’ Equity

Front 39

The Accounting Equation can be expressed in what three ways?

? = ? + ?
? - ? = ?
? – ? – ? = 0 (zero)

Back 39

A = L + SE
A - L = SE
A – L – SE = 0 (zero)

Front 40

I_______ and R______ Transactions & Other Events (LO4)
J________ the identified transactions & events (LO4)
Post from the J_____ to the L_____ (LO4)
Prepare a T____ B____ from the Ledger (LO4)
Prepare necessary A______Entries (LO5)
Prepare an A______ Trial Balance (LO5)
Prepare the F_____ S____ (LO6)
C____ the b____ (LO7)

Back 40

Identify and Record Transactions & Other Events (LO4)
Journalize the identified transactions & events (LO4)
Post from the Journal to the Ledger (LO4)
Prepare a Trial Balance from the Ledger (LO4)
Prepare necessary Adjusting Entries (LO5)
Prepare an Adjusted Trial Balance (LO5)
Prepare the Financial Statements (LO6)
Close the books (LO7)

Front 41

What is the first and hardest step in the accounting cycle?

Back 41

Identify and Record Transactions

Front 42

First, the accountant must i______ those events that should be recorded.

Back 42

identify

Front 43

An item or event should be recorded if it?

Back 43

changes the recorded amount of an account

Front 44

What are the two types of events?

Back 44

external (called transactions) and internal

Front 45

Once an event is identified as recordable, it should be entered in the _______.

Back 45

journal

Front 46

The journal should describe what?

Back 46

Which account is changed and whether it is increased or decreased.

Front 47

The journal becomes a set of instructions, detailing what?

Back 47

which account and by how much the account is changed

Front 48

Posting, which can be done by a 6th grader, involves transferring the information recorded in the journal to the _____ accounts.

Back 48

ledger

Front 49

Once all the recordable events are recorded in the journal and posted to the ledger, a trial balance is prepared to do what?

Back 49

Prove the equality of the debits and credits in the ledger.

Front 50

If all the information is posted from the journal to the ledger correctly, the trial balance should _____ (i.e., total debits = total credits)

Back 50

balance

Front 51

True or False: Just because the trial balance balances, it always means that the financial statements will be correct.

Back 51

false

Front 52

Errors can enter the system several ways. What are some examples?

Back 52

An event that should have been recorded is not recorded or an event that should NOT have been recorded is recorded.
A debit could be posted as a debit but to the wrong ledger account; or a credit as a credit to the wrong account.
An event recorded in the journal can be posted more than one time to the accounts (total debits still equal total credits) or it can fail to be posted.

Front 53

Adjusting entries are necessary to be sure the financial statements are prepared in accordance with what?

Back 53

GAAP

Front 54

I called adjusting entries ______ entries because they ___ the book to make them correct.

Back 54

'fixing'; fix

Front 55

There are two major types of adjusting entries with two subcategories each:

Back 55

Deferrals
- Prepaid Expenses
- Unearned Revenues
Accruals
- Accrued Revenues
- Accrued Expenses

Front 56

______ represent events in which the cash is received/paid prior to time when the items can be recognized as an expense or a revenue

Back 56

Deferrals

Front 57

"a company pays for a 3-year insurance policy in May and prepares F/S in December of the same year" is an example of

Back 57

Prepaid Expenses

Front 58

"in May a company receives cash in payment of one year rent and prepares F/S in December of the same year." is an example of what?

Back 58

Unearned Revenues

Front 59

_______ represent events which are revenues or expenses under GAAP but cash has not yet changed hands

Back 59

Accruals

Front 60

"a company has provided services to another entity and has not yet received payment for those services." is an example of what?

Back 60

Accrued Revenues

Front 61

"a company has used a service and has not yet paid for that service." is an example of what?

Back 61

Accrued Expenses

Front 62

Once the adjusting entries are posted to the accounts, a new trial balance is prepared, the ______ ____ _______, to prove the equality of the debits and credit.

Back 62

Adjusted trial balance

Front 63

From the adjusted trial balance what can be prepared?

Back 63

the financial statements

Front 64

The financial statements can be prepared directly from what?

Back 64

the adjusted trial balance.

Front 65

The I_______ S______ is prepared first, using all the revenue and expense account balances, because the net income number is needed in the Retained Earnings Statement (or similar statement).

Back 65

Income Statement

Front 66

The _________ ________ Statement is prepared using the balance in the books, adding/ subtracting net income/net loss and deducting dividends

Back 66

Retained Earnings

Front 67

What is prepared using all the balances in the asset, liability, and equity accounts, EXCEPT the balance in Retained Earnings for which the new Retained Earnings balance is substituted.

Back 67

The Balance Statement

Front 68

What is prepared last?

Back 68

The Statement of Cash Flows

Front 69

The ending balance on the Cash Flow Statement should be equal to the Cash account balance on the what?

Back 69

Adjusted Trial Balance

Front 70

The c_____ process involves the nominal (temporary) accounts (revenue and expense accounts), the dividend account and the Retained Earnings Account.

Back 70

closing

Front 71

The closing process can be done several ways, all of which end with all revenue and expense accounts, as well as the dividend account, having a zero balance. The R_______ E________ account will end with the balance that appears on the Retained Earnings Statement.

Back 71

Retained Earnings

Front 72

Close all revenue accounts to I_________ S_______

Back 72

Income Summary

Front 73

Close all revenue accounts to Income Summary:
_____ all revenue accounts for their individual balances and ______ Income Summary for the total

Back 73

debit; credit

Front 74

Close all expense accounts to Income Summary
_____ all expense accounts for their individual balances and _____ Income Summary for the total

Back 74

credit; debit

Front 75

Close Income Summary to Retained Earnings:
_____ (if net income) or ______ (if a net loss) Income summary and _____ (if net income) or ______ (if a net loss) Retained Earnings

Back 75

debit; credit
credit; debit

Front 76

Close dividends to Retained Earnings:
_____ Retained Earnings and ____ Dividends for the balance in the Dividend Account

Back 76

debit; credit

Front 77

After preparing the closing entries, post them to the ledger, and prepare what type of trial balance?

Back 77

post-closing

Front 78

True or false:
If you did the closing correctly, only asset, liability, and permanent equity accounts should appear on the post-closing trial balance.

Back 78

True

Front 79

There are two primarily bases of accounting—

Back 79

cash and accrual

Front 80

Most smaller accounting systems are kept on the ______ basis but converted to the ______ basis by means of the adjusting entries.

Back 80

cash; accrual

Front 81

The ____ basis of accounting recognizes revenues when cash is received and expenses when cash is paid.

Back 81

cash

Front 82

The ______ basis of accounting recognizes revenues when they are earned and expenses when they are incurred.

Back 82

accrual