Chp 2: Review Of The Accouting Process

Front 1

Economic Events

Back 1

any event that directly affects the financial position(assets, liabilities, equity) of the company.(PG 52)

Front 2

External Events

Back 2

Involve an exchange between the company and a separate economic entity such as the purchase of merchandise inventory. (PG 52)

Front 3

Internal Events

Back 3

directly affect financial position of company, but don't involve an exchange transaction with another entity such as depreciation of a plant asset. (PG 52)

Front 4

Accounting Equation

Back 4

Assets=Liabilities+Owner's Equity

(PG 52)

Front 5

Retained Earnings

Back 5

Net income- distributions to shareholders

(PG 53)

Front 6

Shareholder's Equity

Back 6

Paid in capital+Retained Earnings

Front 7

Accounts

Back 7

Keep track of increases and decreases in financial position elements and are contained in the general ledger. (PG 54)

Front 8

General Ledger

Back 8

A collection of accounts.

Front 9

Debit

Back 9

Left side of account. (PG 54)

Front 10

Credit

Back 10

Right side of account. (PG 54)

Front 11

Permanent Accounts

Back 11

Represents assets, liabilities, and shareholders' equity at a point in time; represent the basic financial position elements of the accounting equation. (PG 55)

Front 12

Temporary Accounts

Back 12

Represent changes in the retained earnings component of shareholders' equity for a corporation caused by revenue, expense, gain, and loss transactions. (PG 55)

Front 13

Source Documents

Back 13

Relay essential information about a transaction to an accountant and allow him or her to identify the date and nature of each transaction, the participating parties, and the monetary terms. Examples include sales invoices, bills from suppliers, and cash register tape. (PG 55)

Front 14

Transaction analysis

Back 14

The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved. (PG 55)

Front 15

Journal

Back 15

Provide a chronological record of all economic events affecting a firm. (PG 56)

Front 16

Special Journal

Back 16

A journal such as a sales journal that is used to record a repetitive type of transaction. (PG 56)

Simplify the recording process in the following ways:

1. Make journalizing transactions more efficient through specifically designed formats.

2. Individual transactions are not posted to the general ledger accounts but are accumulated in the special journals and a summary posting is made on a periodic basis.

3. The responsibility in journalizing repetitive type of transactions is delegated to individuals specially trained in dealing with them.

(PG 91)

Front 17

General Journal

Back 17

Any type of transaction can be recorded in this journal. (PG 56)

Front 18

Posting

Back 18

Involves transferring debits and credits recorded in individual journal entries to the specific accounts affected. (PG 56)

Front 19

Trial Balance

Back 19

a list of the general ledger accounts listed in the order that they appear in the ledger, along with their balances at a particular date; checks equality of debit and credit balances of accounts. (PG 64)

Front 20

Adjusting Entries

Back 20

Entries recorded in the general journal and posted to the ledger to account for the effect of internal transactions and are recorded at the end of any period when financial statements are prepared. (PG 66)

Front 21

Prepayments

Back 21

Occur when the cash flow precedes either expense or revenue recognition; supplies, deferred revenue for magazine subscriptions. (PG 67)

Front 22

Prepaid Expenses

Back 22

Are the cost of assets acquired in one period and expensed in a future period; Prepaid Insurance, Prepaid rent (PG 67)

Front 23

Deferred Revenues

Back 23

Are created when a company receives cash from a customer in one period for goods or services that are to provided in a future period. (PG 68)

Front 24

Accruals

Back 24

occur when the cash flow comes after either expense or revenue recognition. (PG 70)

Front 25

Accrued Liabilities

Back 25

Related to expenses incurred but not yet paid. (PG 70)

Front 26

Accrued Receivables

Back 26

Involve the recognition of revenue for goods and services transferred to customers before cash is received. (PG 71)

Front 27

Adjusted Trial Balance

Back 27

The trial balance after adjusting entries have been posted to the accounts in the ledger.

(PG 72)

Front 28

Financial Statements

Back 28

The primary means of communicating financial information to external parties. (PG 75)

Front 29

Income Statement

Back 29

Summarizes the profit-generating activities of a company that occurred during a particular period of time. It is a change statement in that it reports the changes in Stockholders' equity that occurred during the period as a result of the revenues, expenses, gains, and losses. (PG 75)

Front 30

`Statement of Comprehensive Income

Back 30

Reports changes in shareholders' equity that were not the result of transactions with owners. (PG 76)

Front 31

Other Comprehensive income(OCI) or Loss Items

Back 31

Excluded from the determination of net income and the income statement, but included in the more broad concept of comprehensive income. (PG 76)

Front 32

Comprehensive Income

Back 32

Can be reported in two ways:

1. In a single continuous statement of comprehensive income.

2.in two separate, but consecutive statements.

(PG 76)

Front 33

Balance Sheet

Back 33

Position statement that presents an organized list of assets, liabilities, and equity at a particular point in time. (PG 76)

Front 34

Current Assets

Back 34

Are those assets that are cash, will be converted into cash, or will be used up within a year or the operating cycle, whichever is longer. (PG 77)

Front 35

Current Liabilities

Back 35

Liabilities that will be satisfied within a year or the operating cycle, whichever is longer. (PG 77)

Front 36

Statement of Cash Flows

Back 36

Change statement with the purpose to report the events that caused cash to change during the period. (PG 78)

Front 37

Operating activities

Back 37

Are inflows and outflows of cash related to transactions entering into the determination of net income. (PG 78)

Front 38

Investing Activities

Back 38

Involve the use of long-term assets used in the business and non-operating investment assets. (PG 78)

Front 39

Financing Activities

Back 39

Involve cash inflows and cash outflows from transactions with creditors and owners. (PG 78)

Front 40

Statement of Shareholders' Equity

Back 40

Change statement with the purpose to disclose the sources of the changes in the various permanent shareholders' equity accounts that occurred during the period from investments by owners, distribution to owners, net income, and OCI. (PG 79)

Front 41

Closing Process

Back 41

Serves a dual purpose:

1. temporary accounts are reduced to zero balances, ready to measure activity in the upcoming accounting period.

2. these temporary account balances are closed to retained earnings to reflect the changes that have occurred to that account during the period.

(PG 79)

Front 42

Income Summary

Back 42

bookkeeping convenience that provides a check that all temporary accounts have been properly closed. (PG 79)

Front 43

Post-Closing Trial Balance

Back 43

The purpose is to verify that that the closing entries were properly posted and that the accounts are ready for next year's transactions. (PG 80)

Front 44

Work Sheet

Back 44

Is used to organize the accounting information necessary to prepare adjusting and closing entries and the financial statements. (PG 87)

Front 45

Reversing Entries

Back 45

Remove the effects of some of the adjusting entries recorded at the end of the previous reporting period for the sole purpose of simplifying journal entries recorded during the new period. (PG 88)

Front 46

Subsidiary Ledger

Back 46

Contains a group of subsidiary accounts associating with a particular general ledger control account. (PG 90)

Front 47

Cash Receipts Journal

Back 47

Where cash receipt journal entries are recorded. (PG 91)

Front 48

Cash Disbursements Journal

Back 48

Where cash disbursement journal entries are recorded (PG 91)

Front 49

Sales Journal

Back 49

Where credit sale journal entries are recorded. (PG 91)

Front 50

Purchases Journal

Back 50

Where the purchases of merchandise on account is recorded. (PG 91)