Shared Flashcard Set

Details

Accounting 2401
Chapter 4
66
Accounting
Undergraduate 1
11/10/2008

Additional Accounting Flashcards

 


 

Cards

Term

 

Permanent accounts, or real accounts, carry their end-of-period balances to next period

Definition
  • Balance sheet accounts
  • Are not closed at the end of each period
Term

Temporary accounts, or nominal accounts begin each period with a zero balance

Definition

 

  • Revenue and expense accounts and the Withdrawals account
  • Are closed at the end of each period
Term
Closing Entries
Definition
  • Set the stage for the next accounting period by clearing revenue and expense accounts and the Withdrawals account of their balances
  • Required at the end of any accounting period for which financial statements are prepared
  • Summarize a period’s revenues and expenses by transferring their balances to the Income Summary account
Term
Income Summary Account
Definition
Does not appear on financial statements
Only used in the closing process
Balance of account equals the net income or net loss reported on the income statement
Term
Adjusting entries bring the accounts up to date before the financial statements are prepared. Closing entries close the temporary accounts so that they can begin the next accounting period with zero balances.
Definition
What is the difference between adjusting entries and closing entries?
Term
Steps in Closing Process
Definition
  • Step 1: Close the credit balances of the income statement accounts to the Income Summary account.
  • Step 2: Close the debit balances of the income statement accounts to the Income Summary account.
  • Step 3: Close Income Summary to the owner’s Capital account.
  • Step 4: Close the Withdrawals account balance to the owner’s Capital account.
Term
Post-Closing Trial Balance
Definition
Only permanent accounts appear on the post-closing trial balance
Term
Net income or net loss for the accounting period
Definition
What does the balance of the Income Summary account represent before it is closed to the owner’s Capital account?
Term
Reversing Entries
Definition
  • Entries made on the first day of a new accounting period
  • Exact reverse of certain adjusting entries made at the end of the previous accounting period
  • Optional
  • Not all adjusting entries are reversed
  • Adjusting entries for accruals can be reversed
  • Deferrals should not be reversed
Term
Reversing Accruals
Definition
  • When payroll is recorded in August, there is no need to look back in the accounting records to see what accrual has been made
  • The reversing entry sets up an abnormal balance in the Wages Expense account and a zero balance in the Wages Payable account
Term
Deferrals are never reversed. An accrual can be reversed, but it is an optional process.
Definition
Do reversing entries apply to accruals and deferrals?
Term
The Work Sheet
Definition
  • A working paper used to organize the data for financial statements
  • Lessens the possibility of omitting an adjustment
  • Helps the accountant check the arithmetical accuracy of the accounts
Term
Preparing the Work Sheet
Definition

The columns of the work sheet are prepared and completed in the following order:

(1) Trial Balance

(2) Adjustments

(3) Adjusted Trial Balance

(4) Income Statement and Balance Sheet columns (5) Total the Income Statement and Balance Sheet columns

Term
Trial Balance Columns
Definition
  • Copy balances of accounts from the ledger into the Trial Balance columns as of the last day of the accounting period
  • If a work sheet is used, a separate trial balance does not have to be prepared
Term
Adjustments Columns
Definition
  • Enter adjustment amounts into the Adjustment columns
  • Identify the debit and credit parts with an identifying letter
  • The two adjustment columns must equal
Term
Adjusted Trial Balance Columns
Definition
  • Combine the balances of accounts in the Trial Balance columns and the Adjustments columns and record the new balance in the Adjusted Trial Balance columns (called crossfooting)
  • The Adjusted Trial Balance columns are footed to be sure they are equal
Term
Income Statement and Balance Sheet Columns
Definition
  • Extend the balances line by line into the Income Statement or Balance Sheet columns
  • Asset, liability, and owner’s equity account balances are extended to the Balance Sheet columns
  • Revenue and expense account balances are extended to the Income Statement columns
Term
Total the Income Statement and Balance Sheet Columns
Definition
Total the debit and credit columns
Net income (or net loss) is equal to the difference between the total debits and credits of the Income Statement columns and the the difference between the total debits and credits of the Balance Sheet columns
Term
Using the Work Sheet
Definition

The completed work sheet is used to perform these tasks:

  • Recording the adjusting entries in the general journal
  • Recording the closing entries in the general journal
  • Preparing the financial statements
Term
Totaling the Adjusted Trial Balance columns ensures that the accounts are still in balance before the new balances are used in preparing the financial statements.
Definition
Why should the Adjusted Trial Balance columns of the work sheet be totaled before the adjusted amounts are carried to the Income Statement and Balance Sheet columns?
Term
Accounting Cycle
Definition
The series of steps followed in measuring business transactions and transforming them into financial statements
Term
closing entries
Definition
entries made at the end of an accounting period that set the stage for the next period by clearing temporary accounts of their balances and transfering them to the Owners Capital account; they summarize a periods revenues and expenses.
Term
Crossfooting
Definition
Adding and subtracting numbers across a row.
Term
Income summary account
Definition
a temporary account used in the closing process that holds a summary of all revenues and expenses before the net income or loss is transfered to the owners Capital account.
Term
permanent accounts
Definition

balance sheet accounts that carry their balances into the next accounting period.

Also called real accounts.

Term
post-closing trail balance
Definition
a trail balance prepared after all the adjusting and closing entries have been posted to ensure that all temporary accounts have zerio balances and that total debits equal total credits
Term
Reversing entry
Definition
An optional journal entry made on the first day of an accounting period that is the exact opposite of an adjusting entry made at the end of the previous period.
Term
temporary accounts
Definition
revenue and expense accounts whose balances are transfered to the owners capital at the end of an accounting period; also called nominal accounts
Term
working papers
Definition
documents that accountants use to organize their work and that support the information in the financial statements
Term
work sheet
Definition
A type of working paper used as a preliminary step in recording adjusting and closing entries and that is used in preparing the financial statements
Term
The steps in the accounting (or sequence of steps followed in the accounting system) are as follows:
Definition

1. analyze - business transactions from source documents

2. Recod - the transactions by entering them in the general journal

3. Post - the journal entries to the ledger, and prepare a trail balance

4. Adjust- the accounts, and prepare an adjusted trail balance

5. Prepare - financial statements

6. Close - the accounts, and prepare a post-closing trail balance

Term
Balance sheet accounts
Definition
or permanent accounts (or real) because their balances can extend past the end of an accounting period. The balances are not set back to zero.
Term
Revenue & Expense accounts
Definition
are called temporary (or nominal) accounts because of their transient nature. Their purpose is to record revenues and expenses during a particular accounting period. At the end of that period, their totals are transfered to owner's equity (via the Income Summary account), leaving zero balances to begin the next accounting period.
Term
Closing entries
Definition
serves two purposes. First, they set the stage for the new accounting period by clearing revenue and expense accounts of their balances. (So that owners captial account can be updated, the withdrawels account also is closed.) Second, they summarize the periods revenues and expenses by transferring the balance of revenue and expense accounts to the Income Summary account. The Income Summary account exists only during the closing process and does not appear in the financial statements. Closing entries must be made at the end of each period for which financial statements are prepared (such as at the end of each quarter).
Term
Temporary credit balances are closed
Definition
This is accomplished with a compound entry that debits each revenue account for the amount required to give it a zero balance and credits Income Summary for the revenue total.
Term
Temporary DEBIT balances are closed
Definition
this is accomplished with a compound entry that credits each expense for the amount required to give it a zero balance and debits Income Summary for the expense total.
Term
The income summary account is closed
Definition
After revenue and expense accounts have been closed, the Income Summary account will have either a debit balance or a credit balance. If a credit balance exists, then Income Summary must be debited for the amount required to give it a zero balance, and the owners Capital account is credited for the same amount. The reverse is done when Income Summary has a debit balance.
Term
The Withdrawels account is closed
Definition
This is accomplished by crediting the owners Withdrawels account for the amount required to give it a zero balance and debiting the owners Capital accountfor the same amount. Note that the Income Summary account is not involved in this closing entry.
Term
The closing process prepares:
Definition
the books for the next accounting period. After closing, the revenue, expenses, and Withdrawels accounts (temporary accounts) have zero balances. The updated owners Capital account reflects withdrawels and net income or net loss for the period just ended. The balance sheet accounts (permanent accounts) show the correct balances, which are carried forward to the next period.
Term
Post closing trail balance
Definition

Happends after the closing entries are posted to the ledger.

Prepared to verify again the equality of the debits and credits in the ledger. Only balance sheet accounts appear in the post-closing trail balance because all income statement accounts and the withdrawels account have zero balances at this point.

Term
Prepare reversing entries
Definition
at the end of each accounting period the accountant makes adjusting entries to bring revenues and expenses into conformity with the matching rule. The accrual type of adjusting entry is followed in the next period bu the reciept or payment of cash. Thus, it would become necessary in the next period to make a special entry dividing amounts between the two periods. To avoid this inconvenience, the accountant can make reversing entries (dated the begining of the new period). Reversing entries, though not required, allow the bookkeeper to simply make the routine bookkeeping entry when cash finally changes hands. Not all adjusting entries may be reversed. Defferrals are not reversed because such reversals would not simplify bookkeeping in future accounting periods.
Term
Prepare and use an adjusting worksheet
Definition
accountants use working papers to help organize their work and to provide evidence in support of the financial statements. The work sheet is one such working paper. It decreases the chance of overlooking an adjustment, acts as a check in the arithmetical accuracy of the accounts, provides evidence of past work so that accountants can retrace their steps, and hels in preparing financial statements. The work sheet is never published and is rearrely seen by management. It is a useful took for the accountant.
Term
Steps to preparing a work sheet
Definition

1. Enter and total the account balances in the Trail Balance columns.

2. Enter and total the adjustments in the Adjustments columns. (A letter identifies the debit and credit for each adjustment and can act as a key to a breif explanation at the bottom of the work sheet.)

3. Enter (after crossfooting, or adding and subtracting from left to right) and total the adjusted account balances in the adjusted trail balance columns

4. Extend (transfer) the account balances from the Adjustetd Trail Balance columns to the Income Statement columns or the balance sheet columns (depending on which typre of account is involved)

5. Total the income statement columns and the balance sheet columns. Enter the new income or net loss in both pairs of columns (one will be entered in a debit columns, and one will be entered in a credit column) as a balancing figure, and recompute the column totals.

Term
Once a work sheet is complete, the accountant can use it to:
Definition

1. record the adjusting entries in the general journal

2. record the closing entries in the general journal, this preparing the records for the new period

3. prepare the financial statements

Term
Formal Adjusting Entries
Definition
must be recorded in the journal and posted to the ledger so that the account balances on the books will agree with those on the financial statements. This is easily accomplished by reffing to the Adjustments columns (and footnoted explainations) of the work sheet.
Term
Formal Closing Entries
Definition
are entered into the journal and posted to the ledger. This is accomplished by reffering to the work sheets Income Statement columns (for the revenue and expenses accounts) and its Balance Sheet columns (for the Withdrawels account).
Term
The income statement may be prepared from the information found in the work sheets Income Statement columns.
Definition
Calculation of the change in owners Capital for the period are showm in the statement of Owners Equity. Information for this calculation may be found in the Balance Sheet columns of the work sheet (begining capital, net income, and withdrawels). The balance sheet may be prepared from information found in the work sheets Balance Sheet columns and the statement of owners equity.
Term

Summary of Journal Entries

To close the credit balance account

Definition

Design Revenue (Credit)

Income Summary (Debit)

Term

Summary of Journal Entries

To close the debit balances accounts

Definition

Income Summary (Credit)

 

Expenses: (Debit)

Wage

Utilities

Rent

Office Supplies

Depreciation

Term

Summary of Journal Entries

To close the Income Summary account

(profit situation)

Definition

Income Summary (Credit Balance)

 

P. Tradle Capital (Debit, Net Income amount)

Term

Summary of Journal Entries

To close the Withdrawels account

Definition

P. Treadle, Capital (Credit, withdrawels for period)

 

P. Treadle Withdrawels (Debit, withdrawels for period)

Term

Summary of Journal Entries

To accrue unrecorded wages

Definition

Wages Expense (credit, amount incurred)

 

Wages Payable (debit, amount to be paid)

Term

Summary of Journal Entries

Paynment of Wages (accrued unrecorded wages not reversed)

Definition

Wages Payable (debit, amount previously accrued)

 

Wages Expense (debit, amount incurred this period)

 

Cash (credit, amount paid)

Term

Summary of Journal Entries

To reverse adjusting entry for payment of wages (assume wages expense had been closed at end of period)

Definition

Wages Payable (debit, amount to be paid)

 

Wages Expenses (credit, amount paid)

 

Term

Summary of Journal Entries

Payment of wages - wages payable reversed

Definition

Wage expenses (credit, amount paid)

 

Cash (debit, amount paid)

Term

Summary of Journal Entries

to reverse adjusting entry for accrued fees earned

Definition

Design Revenue (credit, amount accrued)

 

Accounts Receivable (debit, amount accrued)

Term
In the accounting cycle, which of the following involves the measurement stage?   
Definition
Analyzing the business transactions from source documents   
Term
Which of the following sequences of documents or records describes the proper sequence in the accounting cycle?   
Definition
Source documents, journal, ledger, financial statements   
Term
Which of the following accounts is not closed during the closing process?   
Definition
Owner's Capital   
Term
Which of the following is a nominal account?   
Definition
Property Taxes Expense   
Term
An important purpose of closing entries is
Definition
transfer net income or net loss to the owner's Capital account.
Term
Which of the following could not possibly be a closing entry?   
Definition
Debit Income Summary and credit Withdrawals   
Term
After all closing entries have been posted, which of the following accounts is most likely to have a nonzero balance?   
Definition
Wages Payable   
Term
When there is a net loss, the entry to close the Income Summary account
Definition
 debit Owner's Capital and credit Income Summary.   
Term
The entry to close the Withdrawals account is   
Definition
debit owner's Capital and credit Withdrawals.   
Term
Which of the following accounts would not be closed?   
Definition
Accounts Receivable   
Supporting users have an ad free experience!