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24 Cards in this Set
- Front
- Back
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Double-entry accounting |
A method of maintaining financial records that serves as a foundation of modern accounting systems. The concept states that every accounting entry must have two parts |
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An asset account is normally increased by a? |
Debit |
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A credit is |
The right-side of a t-account; or entries that decrease asset and expense accounts and increase liabilities, owner's equity, and revenue accounts |
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Journal |
The book of original entry in which a complete record of transactions is first recorded |
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Posting |
The process of copying journal entry information from a journal to the ledger accounts |
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Ledger |
1. A group of related accounts that makeup a complete unit 2. A file or book containing the separate accounts of a business |
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When land (an asset) is sold on credit for the amount it cost |
Total assets do not increase. |
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An account balance is |
The difference in the total debits and total credits in an account |
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T/F when the trial is in balance (debit equal credits) the trial balance is assumed to be absolutely correct |
F. |
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The accounting cycle |
1. Can be said to include 4 basic steps - journal transactions, prepare a trial balance, and prepare financial statements 2. Is repeated every accounting period 3. is the same for all types and sizes of business |
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Matching principle |
The accounting requirement that expenses be reported in the same accounting period as the revenues that were earned as a result of the expenses |
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Accrual basis of accounting |
A system in which the adjustment process assigns revenues to the period earned and matches expenses with revenues.
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Time period principle |
Identifies the activities of a business as occurring during specific time periods such as months or 3-month periods, or years so that periodic financial reports of the business can be prepared |
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Cash basis of accounting |
An accounting system in which revenues are reported on the income statement when cash is received and expenses are reported when cash is paid. |
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The revenue recognition principle |
1. Revenue should be reported when it is earned and not before 2. The inflow of assets is associated with revenue does not have to be in the form of cash 3. The amount of revenue should be measured as the cash received plus the cash equivalent value of any noncash assets received (or to be received) from customers in exchange for goods or services |
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Adjusting entries are |
1. Made at the end of every period 2. Required to update the ledger after financial statements are prepared for the period |
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A prepaid adjusting entry is required when |
There are costs recorded as either an asset or expense of the period that must be apportioned between two or more accounting periods |
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An accrual adjusting entry is required when |
1. There are unrecorded revenues 2. There are unrecorded expenses |
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When you fail to adjust a prepaid expense that has partly expired, which was originally recorded by debiting the asset account, the result will usually be |
An overstatement of assets and an understatement of accounts |
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Depreciation expense |
The name of the account debited when the cost of a long-term asset is allocated over the assets useful life |
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An unearned revenue account is considered to be a |
Liability |
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Failure to adjust an unearned revenue account for an amount that has been partly earned by the end of the accounting period and which was originally recorded in the unearned revenue account will result in |
Understatement of revenues and overstatement of liabilities |
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If an adjusting entry to record an accrued but unrecorded expense is not made |
Then both expenses and liabilities will be understated |
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"Managing" reported net income by omitting adjusting entries is |
illegal behavior, punishable by fines and/or prison |
