the financial accounting cycle – Flashcards

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question
outline the business cycle
answer
1. business transaction 2. record in journal 3. post to ledger 4. extract unadjusted T-B 5. adjustments 6. adjusted T-B 7. prepare financial accounts 8. post closing T-B record close T-B and other business transactions in journal and repeat the accounting cycle.
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what is a business transaction?
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> a transfer of value > affects the financial position of the business > can be reliably recorded > reflected in source documents
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what are source documents?
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objective and verifiable evidence of accounting records. they are usually filed for future evidence.
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give some examples of source documents
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sales invoices, purchase invoices, cheque stubs
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name the two main types of accounts
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personal and impersonal accounts
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give examples of personal accounts
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a/c receivables, a/c payable, OE
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name the two categories of impersonal accounts
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real and nominal accounts
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give examples of real accounts
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NCA, cash, inventory
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give examples of nominal accounts
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revenues, expenses,, gains, losses
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name the TWO types of PERMANENT accounts
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personal and real accounts are referred to as permanent accounts
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describe permanent accounts
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1. accumulate information across accounting periods 2. are carried forward to the next accounting period 3. are reflected in the BALANCE SHEET
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give examples of permanent accounts
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A/Cs receivables, A/Cs payable, OE, non-current assets (NCA), cash, inventory
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what are referred to as TEMPORARY accounts
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nominal accounts
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describe temporary accounts
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* contain information for one accounting period * do not accumulate information across accounting periods * are ' closed out ' at the end of the accounting period to eigher the income statement ( IS) or statement of owner's equity ( SOE)
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what are some of the features of the DOUBLE-ENTRY accounting system
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1. each transaction affects at least two accounts 2. total debits must equal total credits 3. financial accounting is founded upon the double entry system
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what is the double entry bookkeeping system?
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it means recording the dual effects of each business transaction.
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give the normal balance of these accounts: assets, expenses, withdrawals, liabilities, revenues, capital
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assets --------> Dr expenses -------> Dr withdrawals -------> Dr liabilities -------> Cr revenues -------->Cr capital --------> Cr
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state the chart of accounts
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ACCOUNT BEGIN WITH Assets 1 liabilities 2 owner's equity 3 revenues 4 expenses 5
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give the steps in the accounting process
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1. determine which accounts are affected 2. determine category for each account 3. determine whether each account increased or decreased 4. apply rules of Dr and Cr 5. place amount in account
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give the effect of changes to accounts on the accounting equation
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- the accounting equation always stays in balance - each transaction affects at least two accounts, sometimes more. - some transactions affect only one side of the equation; some affect both sides.
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what is a journal?
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it is a list in chronological order of all the transactions for a business.
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steps in the JOURNALISING process
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1. identify transaction from SOURCE DOCUMENTS 2. identify each account affected and its type 3. apply debit/credit rules 4. record transaction in journal
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what does a journal entry include?
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> date of the transaction > title of the account debited > title of the account credited >amount of the debit and credit > description of the transaction
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name the two types of journals
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SPECIAL/SUBSIDIARY and GENERAL JOURNAL
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what are subsidiary journals
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may be used to record specific transactions
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what is the general journal
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is used to record all transactions for which a SJ is not kept. Each transaction recorded in the GJ is followed by a narration
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what is a ledger?
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it contains all accounts utilized by an entity during an accounting period
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what is posting?
answer
is the process of transferring information from the journal to the appropriate accounts in the ledger
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