Term
| Accounting Information System |
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Definition
| The system of collecting and processing transaction data and communicating financial information to decision makers. |
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Definition
| economic events that require recording in financial statements. |
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-May be external or internal
-Not all activities represent transactions
-Each transaction has a dual effect(double entry that balances itself) on the accounting equation. |
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| The process of identifying specific effects of business transactions (economic events) on the accounting equation |
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| Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item |
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Each transaction must effect two or more accounts to keep the basic accounting equation in balance.
-Recording by debiting at least one account, and crediting another
-Debits MUST be equal to credits |
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| Debits should increase Credits |
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| Credit must increase Debits |
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| Credit must be bigger than Debits |
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| Credits must exceed Debits |
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| Debits much exceed credits |
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| Debits must exceed credits |
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Definition
| Credits must exceed debits |
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| Debits must increase Credits |
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| This is on the side that entries increase the account balance |
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| Owners Investments and Revenue |
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| Increase assets and decrease liabilities |
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| Accounts that normally have debit balances |
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Definition
| Assets, dividends and expenses |
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A sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction
-Transactions=Business Events |
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Definition
A book of the original entry.
-It is the diary of the business
-Transactions recorded in chronological order
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| Contributions the Journal makes on the Business Process |
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Definition
1. Discloses detail and complete evidence of a transaction
2. Provides a chronological record of transactions
3. Helps to prevent and locate errors because the debit and credit amounts can be easily compared. |
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Definition
| Entering transaction data in the journal |
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Definition
Contains the entire group of accounts maintained by a company
-It is where the diary of the business is recorded in a data base. |
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| Accounts arranged in sequence in which they are presented in the financial statements |
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| The process of transferring the data from the journal(diary) to the ledger accounts (data base) |
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Definition
1. Determine what kind of account is involved.
2. Determine what items increase or decreased and by how much.
3. Translate the increases and decreases into debit and credits |
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The list of accounts and their balance at a given time.
- Purpose is to prove debits equal credits. |
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Term
| Limitations of a trial balance |
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Definition
1. A transaction is not journalized
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a transaction. |
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Term
| The trail balance will not balance if: |
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Definition
| A $100 cash dividends is debited to the dividends account for $1000 and credited to cash for $100 |
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Term
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Definition
| Accountants divide the economic life of a business into artificial sections |
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Term
| Revenue Recognition Principle |
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Definition
| Companies recognize revenue in the accounting period in which it was earned. |
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| Revenue Recognition Principle |
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Definition
| In a service enterprise, revenue is considered to be earned at the time the service is performed. |
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Definition
Expenses matched with revenues in the period when efforts are expanded to generate revenues.
"Let the expenses follow revenues" |
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| Transactions recorded in the periods in which the events occur |
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Definition
| Revenues are recognized when earned, rather than when cash is received. |
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| Expenses are recognized when incurred, rather than when paid. |
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| Revenues are recognized when cash is received. |
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| Expenses are recognized when cash is paid. |
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| This is NOT in accordance with the general accepted accounting principles |
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| No need for Accruals or Deferrals. |
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| This is FALSE about Accural Accounting |
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Definition
| revenue is recorded when cash is received, and expenses are recognized when cash is paid. |
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| Adjusting Entries Purpose |
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Definition
| Make it possible to report correct reports on the Balance sheet and on the income statement |
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Definition
| Every entry must include one income statement account and one balance sheet account (impacts net income) |
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Adjusting Entries
Revenues |
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Definition
| Recorded in the Period in which they are earned |
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Term
Adjusting Entries
Expenses |
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Definition
| Recognized in the period in which they were incurred. |
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Definition
| Need to ensure they follow the revenue recognition and matching principle |
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Definition
| Prepaid Expenses and Unearned Revenues |
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| Expenses paid in cash and recorded as assets before they are used or consumed. |
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| Cash received and recorded as liabilities before revenue is earned |
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| Accrued Revenue and Accrued Expenses |
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| Revenues earned but not yet received in cash or recorded. |
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| Expenses incurred but not yet paid in cash or recorded |
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Definition
| Each account is analyzed to determine whether it is complete and up to date. |
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Term
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| Costs that expire either with the passage of time or through use |
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Term
Prepaid Expenses
Adjusting Entry Purpose |
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Definition
1. To record the expenses that apply to the current accounting period
2. To show the unexpired costs (amount not used up yet) in the asset accounts |
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Definition
Increase (debits) expense account
Decrease (credit) an asset account |
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| Buildings, equipment, and vehicles (long-lived assets) are recorded as assets (unexpired costs) rather than an expense, in the year acquired. |
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| Receipt of cash that is recorded as a liability because the revenue has not been earned. |
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Rent
Airline tickets
School Tuition
Magazine Subscriptions
Customer Deposits |
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Definition
Decrease (a debit) to liability account
and an increase (a credit) to a revenue account |
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| The current accounting period that have not been recognized through daily entries. |
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Definition
Rent
Interest
Service Performed |
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Definition
1. It shows the receivables that exist.
2. It records the revenues earned. |
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Definition
Increases (debits) an asset account
Increases (debits) a revenue account |
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Definition
| Expenses incurred but not yet paid for or recorded |
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Definition
Rent
Interest
Salaries
Taxes |
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Definition
1. It records the obligations (purposes)
2. It recognizes the expenses |
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Definition
Increase (debits) an expense account
Decrease (credits) a liability (payable) account |
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Definition
1. It records the obligations
2. It recognizes the expenses |
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Term
| Adjusted Trail Balance Purpose |
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Definition
| To prove the equality of debit and credit balances in a ledger |
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| Financial Statements are directly prepared from |
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Definition
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| Post Closing Trial Balance Purpose |
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Definition
| To prove the equality of the permanent account balances that the company carries forward into the next accounting period |
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| All temporary accounts that will have zero balances |
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Definition
| Revenue, Expense, Dividend Accounts |
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Definition
| Company provides full and transparent information |
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Definition
| The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. |
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Term
| Under this act, many companies are trying to improve the quality of their financial reporting |
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Definition
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Term
| Net Income on Cash Basis is referred to as |
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Definition
| Net Cash Provided By Operating Activities |
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