intermediate accounting ch 3
Terms
undefined, object
copy deck
- Factors that shape accounting systems are
-
nature of business
size of firm
volume of data
informational demands that management places on system - EVENT
- a happening of consequence. Source or cause of changes in assets, liabilities, and equity, may be internal or external
- TRANSACTION
- an EXTERNAL event involving a transfer between two or more entities
- ACCOUNT
- A systematic arrangement that shows the effect of transactions and other events on a specific asset or equity.
- REAL ACCOUNTS
- asset, liability, and equity accounts.
- Another name for real accounts
- Permanent
- Real accounts are found on the ___________
- balance sheet
- NOMINAL ACCOUNTS
- revenue, expense and dividend accounts
- Nominal Accounts appear on the
- income statement (except for dividends)
- (Nominal/real) accounts are periodically closed
- Nominal
- LEDGER
- the book containing the accounts
- a__________ ledger is a collection of all the asset, liaility, owners' equity, revenue and expense accounts
- general
- a___________ ledger contains the details related to a given general ledger account
- subsidiary
- JOURNAL
- The book of original entry where transactions and selected other events are originally recorded.
- POSTING
- Theprocess of transferring the essential facts and figures from the book of original entry to the ledger accounts
- TRIAL BALANCE
- a list of all open accounts in the ledger and their balances.
- A trial balace taken immediately after closing entries have been posted is called a_____________
- post-closing or after closing trial balance
- ADJUSTING ENTRIES
- Entries made at the end of an accounting period to bring all accounts up to date on an acrual accounting basis so that correct financial statements can be prepared.
- CLOSING ENTRIES
- formal process by which all nominal accounts are reduced to zero and the net income or net loss is determined and transferred to an owners' equity account.
- Left
- DEBIT
- RIGHT
- credit
- the two-sided effect of each transaction is recorded in appropriate accounts in the ____ accounting system
- double-entry
- ______ + ________ = _________ is the basic accounting equation
- Assets = Liability + Stockholders equity
- Common stock and retained earnings are reported in the __________ section of the balance sheet
- Stockholders' equity
- Accounts commonly used in the equity section of a corporation's balance sheet
-
Common Stock
Additional Paid-in Capital
Dividends
Retained Earnings - In a proprietorship, or partnership a _______ account is used to indicate the owner's investment in the company.
- Capital
- A __________ account is used to indicate withdrawls by the owners in a proprietorship or partnership
- Drawing
- a convienient method of illustrating the effect of transactions on particular asset, liabilty, equity, revenue and expense items
- T-account
- every general journal entry consists of four parts
-
1) the accounts and amounts to be debited
2) the accounts and amounts ot be credited
3) a date
4) an explanation - when items entered in the general journal are transferred ot the general ledger
- posting
- The number in the posting reference column serves 2 purposes
-
1) indicates the ledger account number of the account involved
2) indicates that the posting has been completed for a particular item - a list of accounts and their balances at a given time
- trial balance
- the primary purpose of a trial balance is to prove
- the mathematical equality of the debits and credits after posting
- The procedures for preparing a trial balance consist of
-
Listing the account titles and their balances
totaling the debit and credit columns
proving the equality of the two columns - Trial balances may balance even when
-
1) a transaction is not journalized
2) correct journal entry is not posted
3) journal entry is posted twice
4) incorrect accounts are used in journalizing or posting
5) offsetting errors are made in recording the amount of the transaction - The trial balance may not contain up-to-date information because
-
1) some events are not journalized daily because it is not expedient (consumption of supplies
2) costs expire with the passage of time rather than as a result of recurring daily transactions (equipment deteriorization)
some items may be unrecorded such as a utility service bill that will not be received until the next accounting period - Adjustments are often prepared after the balance sheet date, however, the entries are dated ______.
- as of the balance sheet date
- Ajusting entries can be classified either as ________ or _____________.
- prepayments or accrurals
- subcategories of prepayments
-
Prepaid expenses
Unearned revenues - Subcategories of Accrurals
-
Accrued Revenues
Accrued Expenses - Prepayments are either ______ or _________
-
prepaid expenses
unearned revenues - The asset and liabiliy are _________ and the related expense and revenue are __________.
- overstated; understated
- Expenses paid in cash and recorded as assets before they are used or consued are identified as_________.
- prepaid expenses
- Prepayments often occur in regard to
-
insurance
supplies
advertising
rent
when buildings and equipment are purchased - Prepaid expenses expire with _____________ or through ___________.
- passage of time; use and consumption
- Prior to adjustment, assets are _________ and expenses are ____________.
- overstated, understated
- The prepaid expense adjusting entry results in a _____ to a(n) _________ account and a ________ to a(n) asset account
- debit, expense; credit, asset
- The term of service is comony referred to as the ____________ of the asset
- useful life
- An account that is offset against an assset account on the balance sheet
- contra asset account
- The difference between the cost of any depriciable asset and its related accumulated dereciation is its
- book value
- Revenues received in cash and recorded as liabilities before they are earned are called ______.
- unearned revenues
- examples of unearned revenues
-
rent
magazine subscriptions
customer deposits for futher service
recipts from the sale of goods or services not delivered - In the case of unearned revenues that have not been adjusted liabilities are _______ and revenues are ___________
- overstated; understated
- adjusting entries for accrurals are required to record ___________ and ___________ in the
- revenues earned, expeneses incurred
- The adjusting entry of accruals will ___________ a balance sheet and _______ an income statment account
- increase; increase
- Examples of accrued revenues that accumulate with the passing of time are
-
interest revenue
rent revenue - an example of services that are performed but neither billed or collected is
- commissions and fees
- an ajusting entry for ______ results in a debit (_______) to an asset account and a credit (________) to a revenue account
- accrued revenues; increase, increase
- Proper matching of revenues and expenses dictates recording bad debts as a(n) _________ of ___________ instead of the period ______________.
- expense; the period revenue is earned; in which the accounts are written off
- The purpose of an adjusted trial balance is to
- show the effects of all financial events that have occurred during the accounting period
- The procedure generally followed to reduce the balance of nominal (temporary) accounts to zero in order to prepare the accounts for the next period's transactions is called
- CLOSING
- In the closin process all of the revenue and expense account balances are transferred to a clearing or suspense account called
- Income summary
- __________ and ____________ are matched in the Income Summary account
- Revenues and Expenses
- the inventory system where purchases and sales are recorded directly into the ______ as purchases and sales occur.
- inventory account
- THe post closing trial balance consits of only the _____, ________ and ______ accounts
- asset, liabilty, and owners' equity
- A _______________ is made at te beginning of the next accounting period and is the exact opposite of the related adjusting entry made in the previous period.
- reversing entries
- List the steps in the accounting cycle in logical sequence
-
-enter the transactions in the appropriate journals
-post from journal to ledger
-take unajusted trial balance
-prepare adjusting journal entries and post to ledgers
-take a trial balance after adjusting
-pepare financial statements from second trial balance
-prepare closing jounal entries and post to ledger
-take a trial balance after closing
-prepare reversing entries and post to ledger - Work Sheet Columns
-
-Trial Balance Columns
-Adjustment Columns
-Adjusted Trial Balance
-Income Statment and Balance sheet Columns
-Income Taxes and Net Income - Three inventory accounts
-
Work in Process
Raw Materials
Finished Goods - Examples of current assets on the balance sheet
-
interest recievable
unexpired insurance
prepaid rent expense - The amount of Allowance for Doubtful Accounts is deductedfrom total of ________,_________, and __________
- accounts, notes, interest recievable