accounting exam chap 5&6

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  1. income summary
    closing entries which is the revenue and expense account balances are transffered to this account to allow calculations of net income or net loss
  2. closing entries
    entries made at the end of fiscal period to closse off revenue, expense and Drawing accounts - that is to make the balances of the the temporary accounts equal to zero
  3. post-closing trial balance
    the listing of the final balances of the (real) permanent accounts at the end of the fiscal period
  4. fiscal period
    any period of time covering a complete accounting cycle, generally consisting of twelve consecutive months
  5. fiscal year
    a fiscal period consisting of twelve consecuive months
  6. interim statements
    financial statements prepared during the fiscal year, covering a period of time of less than twelve months
  7. Fail to record expired insurance
    • -assests is overstated
    • -expenses is understated
    • -equity is overstated
  8. accumulated depreciation
    contra asset account, always has credit normal balance
  9. Accrual vs. cash basis
    • accrual - revenue is recorded when its earned, regardless of when it is received. and expenses are recorded when when they are incurred, regardless of when they are paid
    • cash - revenue is recorded when it is received in cash and expenses are recorded only when are paid in cash
  10. nominal (temporary-equity) accounts
    • -accounts that are to be closed at the end of fiscal period, such as revenue, expense, and Drawing accounts
    • -also called all accounts except assets, liabilities and Capital account
  11. real (permanent) accounts
    accounts that remain open (assets, liabilites and Capital account in owners equity) and that have balances that will be carried over to the next fiscal period
  12. change fund
    a cash fund used by business to make change for customers who pay cash for goods or services
  13. internal control
    plans and procedures built into the accounting system with the objectives to protect assests against fraud and waste, provide accurate accounting data, promote efficient operation,and to encourage adherence to management policies
  14. petty cash fund
    a cash fund used to make small, immediate cash payments
  15. bank reconciliation
    to determine the balance of the Cash account from transactions that bank doesnt know but we know as well as transactions that ledgers doesnt know but the bank knows.
  16. deposit in transit
    a deposit not recorded on the bank statement because the deposit was made between the time of the bank's closing date for compiling items for its statement and the time the statement is received by the depositor; also known as late deposit
  17. qualified endorsement
    an endorsement in which the holder (payee) of the check avoids future liabilty, in case the drawer of the check does nto have sufficient funds to cover the check, by adding the words "Pay to the order of" and "without recourse" to the endorsement on the back of the check.
  18. restricted endorsement
    an endorsement, such as "Pay to the order of (name of the bank), for deposit only," that restricts or limits any further negotiation of the check. it forces the check deposit, because the endorsement is not valid for any purpose.
  19. internal control - cash receipts
    • maintain separation between cash handling and cash recording
    • designate someone other than the bookeeper to open mail
    • make a record of cash received
    • endorse checks immediately upon receipt with a stamp, "For Deposit Only"
    • Deposit cash daily
    • jounalize cash receipts as soon as possible, preferably by someone different than the person who first reeived the cash
    • post cash receipts to the Accounts Receivable account as soon as possible
  20. internal control - cash payments
    • make sure that all cash payments are made by check (with the exception of petty cash)
    • make certain that all checks are prenumbered
    • keep check supplies under lock
    • assign someone different than the signer of the checks to prepare the checks
    • appoint someone other than the person preparing checks to prepare the bank reconciliations
    • keep petty cash under lock with access limited to one person other than the bookkeeper
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accounting exam chap 5&6
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