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ACTG 2010 ch1 2 3 9/29

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Termini in questo insieme (22)

  • How does the double-entry accounting system work?
    It affects two or more accounts simultaneously for every transaction, ensuring transactions balance and making financial information easier to assess.
  • What limitation does the double-entry system overcome compared to the template approach?
    It overcomes the template's broadness and lack of detail by tracking many transactions while maintaining a balanced accounting equation.
  • What is the normal balance concept in accounting?
    It defines whether an account increases with a debit or credit, ensuring transactions balance by increasing one account and decreasing another accordingly.

  • What are the three categories of business activities?

    Financing (raising capital like issuing stock or borrowing), investing (buying/selling long-term assets), and operating (daily revenue-generating activities like sales and paying wages).

  • What are the qualitative characteristics of useful financial information?

    Relevance (predictive, confirmative, material) and faithful representation (neutral, error-free, complete). Enhancing characteristics include comparability, verifiability, timeliness, and understandability.

  • List the 9 steps in the accounting cycle.
    1. Opening balances 2. Transaction analysis 3. Record transactions 4. Post to ledger 5. Prepare trial balance 6. Adjustments 7. Adjusted trial balance 8. Prepare financial statements 9. Closing entries.
  • Why is the chart of accounts important for a company?
    It organizes all accounts for internal and external users, aiding decision-making and ensuring consistent financial reporting.

  • How does the cost constraint affect financial reporting?

    The benefits of producing and reporting financial statements must outweigh the costs involved for the business.

  • What are the implications of changing the chart of accounts mid-year?
    It creates gaps in reporting and makes year-to-year comparisons difficult; companies usually deactivate accounts at year-end instead.
  • What is the difference between permanent and temporary accounts?
    Permanent accounts carry over year to year (e.g., assets, liabilities), while temporary accounts reset annually (e.g., revenues, expenses).

  • What are the three profitability ratios used to assess a company?

    Profit margin, return on equity, and return on assets; these help shareholders decide on investing and compare company performance.

  • How are transactions recorded in the general journal?
    Chronologically, with the debited account listed first and credited accounts indented below, including dates and multiple accounts per transaction.
  • What is the purpose of the general ledger?
    It shows all transactions for each account, providing up-to-date balances and detailed account activity.
  • Why are adjusting entries necessary?
    To record revenues and expenses in the correct period, accounting for accrued or deferred items like interest and depreciation.
  • What are the two types of adjusting entries?
    Accruals (recognize revenue/expense before cash changes hands) and deferrals (recognize revenue/expense after cash is received or paid).
  • What is a contra account?
    An account with a balance opposite to its normal balance, such as a contra asset having a credit balance instead of a debit.
  • Why are closing entries necessary?
    To reset temporary accounts to zero and transfer their balances to retained earnings, preparing the system for the next period.
  • What are the four closing entries?
    1. Close revenues to Income Summary 2. Close expenses to Income Summary 3. Close Income Summary to Retained Earnings 4. Close Dividends to Retained Earnings.
  • When are closing entries made?
    At the end of each accounting period, typically at year-end.
  • What is the format of a basic journal entry?
    Date and/or entry number, debit account name and amount, credit account name and amount, with debits listed first and credits indented below.

  • How do you analyze basic transactions in accounting?

    Ensure both sides of the accounting equation balance, match debits and credits, select correct accounts to increase or decrease, and consider factors like interest on loans.

  • What 4 steps do i take to record transactions

    1. Which accounts are affected 

    2. Are accounts increasing or decreasing 

    3. Is this a debit or credit

    4. Is my accounting equation still intact