Accy 111 Chapter 2

Card Set Information

Accy 111 Chapter 2
2013-02-14 14:58:54
Accy 111 Chapter

Accy 111 Chapter 2
Show Answers:

  1. Economic Events
    Cause changes in the financial position of the company.
  2. External Events
    involve an exchange between the company and another entity
  3. Internal Events
    directly affect the financial position of the company but don't involve an exchange transaction with another entity
  4. Accounting Equation
    underlies the process used to capture the effect of economic events A = L + OE. Total economic resources of an entity (its assets) on the left side, and liabilites and equity on the rights side. Resources must always equal claimes.
  5. Transaction or event
    Has a dual effect on the accounting equation. Each transaction is analyzed to determine its effect on the equation and on the specific financial position element.s
  6. owners equity or shareholders equity
    • Rises from two sources: 1} amounts invested by shareholders in the corporation 2} amounts earned by the corporation (on behalf of the shareholders).
    • These are reported as 1} paid in capital 2} retained earnings.
  7. Retained earnings
    • retained earnings equals net income less net income less distributions to shareholders (primarly dividends) since the inception of the corporation.
    • *increases and decreases¬†are retained earnings are recorded indirectly. An expense represents a decrease in RT, which requires a debit. That debit is recorded in an expense acct rather than RT. The debit to RT earnings is recorded in the closing entery at the end of the period, only after the exp is recorded in the income statement.
  8. Double Entry system
    refers to the dual effect that each transaction has on the accounting equation
  9. General Ledger
    a collection of storage areas, called accounts, used to keep track of increases and decreases in financial position elements.
  10. Debit/Credit with respect to assets
    Asset increases are entered on the debit side of accounts and decreases are entered on the credit side.
  11. Debit/credit with respect to liabilities
    liability and equity account increases are credits and decreases are debits
  12. Permanent Accounts
    represents assets, liablilities, and shareholders equity at a point in the time line.
  13. Temporary accounts
    Represents changes in the retained Earnings component of shareholders equity for a corporation caused by revenue, expense, gain and loss transaction.
  14. 1) Step of Accounting Processing Cycle:  Source Documents
    identify external transactions effecting the accounting equation. An accountant does not witness business transactions. Sales invoices, bills from suppliers, and cash register tapes serve this need.
  15. 2) Step of Accounting Processing Cycle: Transaction analysis
    is the process of reviewing the source documents to determine the dual effect on the the accounting equation and the specific elements involved. Determinek the dual effect on the account equation.
  16. 3) Step of Accounting Processing Cycle: journal
    Provide a chronological records of all economic events affection a firm. Each journal entry is expressed in terms of equal debits and credits to accounts affected by the transaction being recorded.
  17. 4) Step of Accounting Processing Cycle: Posting
    is to periodically transfer or post the debit and credit information form the journal to individual ledger accounts. Each account provides a summary of the effects of all events and transactions on that individual account. Posting involves transferrring debits and credits recorded in individual journal entries to the specific accounts affected.  transferring balances from the journal to the ledger
  18. 5) Step of Accounting Processing Cycle: Unadjusted trial balance
    Purpose is to allow us to check for completeness and to proce that the sum of the accounts with debit balances equals the sum of the accounts with credit balances. List of accounts and their balances before recording adjusting entries
  19. 6) Step of Accounting Processing Cycle: Adjusting Entries
    is to record in the general journal and post to the ledger accounts the effect of internal events on the account equation. These transactions do not involve an exchange transaction with another entity and therefore are not initiated by a source document. They are recorded at the end of any period when financial states are prepared. Are necessary for Prepayments (deferrals), accurals, estimates.
  20. 7) Step of Accounting Processing Cycle: Adjusted Trial Balance
    adjusting entries have now been posted to the accounts. List of accounts and their balances after recording adjusting entries
  21. 8) Step of Accounting Processing Cycle: Financial statements
    After adjusted trial balance. Primary means of disseminating information to external decision makers.
  22. 9) Step of Accounting Processing Cycle: Closing entries
    ** to zero out the owners equity temporary accounts. The closing process serves a dual purpose 1) the temp accounts (rev, exp, gain, losses) are reduced to zero balances, ready to measure activity in the upcoming account period. 2) these temp account balances are closed (transferred) to retained earnings to reflect the changes that have occurred in that account during the period.
  23. 10) Step of Accounting Processing Cycle: Post closting
    Year end only. Purpose is to make sure the closing entries were prepared and posted correctly and that the accounts are now ready for next years transactions. *** list of accounts and their balances after recording closing entries.
  24. Prepayments
    occur when the cash flow precedes either expense or revenue recognition.
  25. Prepaid Expenses
    represent assets recorded when a chash disbursement creats benefits beyond the current reporting period. debit to an expense and credit to an asset
  26. Unearned Revenues
    are created when a company recieves cash from a customer in one period for goods or services that are to be provided in a future period. Represents liablities
  27. Accruals
    occurs when the cash flows comes after either expense or revenue recognition. Many occur from external transactions that automatically are recorded from a source document.
  28. Accured liabilities
    represent liabilities recorded when an expense has been incurred prior to cash payment.
  29. Accrued Receivables.
    Involve the recognition of revenue earned before cash is received.
  30. Estimates
    accounts often must make estimates in order to comply with the accrual accounting model. Depreciation of estimated life on equipment as an example.
  31. Income Statement
    is a change statement that summarizes the profit generationg transactions that caused shareholder' equity (retained earnings) to change during the period. Revenue and expenses to equal net income
  32. The Statement of Comprehensive Income
    reports the changes in shareholders equity during the preiod that were not a result of transaction with owners. A few types of gains and losses, called other comprehensive income (OCI) or loss items, are excluded from the determination of net income and income satement, but are included in the brader concept of comprehensive income.
  33. Balance Sheet
    is a position statement that presents an organized list of assets, liabilities and equity at a prarticular point in time. Classifications included: current assets and liablities.
  34. Statement of Cash Flows
    the purpose of the statement of cash flows is to summarize the trnsactions that cuased cash to change during the period. The statement classifies all transactions affecting cash into one of three categories: 1) operating activities, 2) investing activites, 3) financing activities.
  35. Statement of Shareholders Equity
    discloses the sources of change in the permanent shareholders' equity accounts.