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ACCOUNTING 101- BASIC ACCOUNTING | STUDY
GUIDE
Accountant - Answers - A person who keeps the financial history of the transactions of an economic unit in written form. (p. 4) Accounting - Answers - The process of analyzing, classifying, recording, summarizing, and interpreting business transactions in financial or monetary terms. (p. 3) Economic unit - Answers - Includes both business enterprises and not-for-profit entities. (p. 3) Ethics - Answers - A philosophy or code or system of morality that is, how we conduct ourselves from day to day in a variety of situations requiring a decision, usually of a right or wrong nature. (p. 8) (FASB) Financial Accounting Standards Board SEC-FASB-GAAP - Answers - The organization, created in 1973 by the SEC, that created GAAP. (p. 4) (GAAP) Generally Accepted Accounting Principles - Answers - The rules or guidelines used for carrying out the accounting process. (p. 4) (IASB) International Accounting Standards Board - Answers - The International organization that provides Standards or rules for international financial reporting. (p. 4) (IFRS) International Financial Reporting Standards - Answers - The rules or guidelines that guide International Financial Reporting. (p.g 4) Paraprofessional accountants - Answers - People who are qualified in accounting to assume the duties of a general bookkeeper as well as some of the duties of a professional accountant under that accountant's supervision. (p. 7) Sarbanes-Oxley Act - Answers - A U.S. federal law enacted as a response to a number of major corporate and accounting scandals that establishes a wide range of rules related to the audit environment and internal controls. (p. 9) (SEC) Securities and Exchange Commission - Answers - The agency responsible for regulating public companies traded on a U.S. Stock Exchange. (p. 4) Transaction - Answers - An event directly affecting an economic entity that can be expressed in terms of money and that must be recorded in the accounting records. (p.
Owner's Equity - Answers - Owner's right to or investment in the business. (p. 13) Assets - Answers - Cash, properties or things of value owned by an economic unit or business entity. (p. 13) Business entity - Answers - A business enterprise, separate and distinct from the persons who supply the assets it uses. (p. 13) Creditor - Answers - One to whom money is owed. (p. 14) Capital - Answers - The owner's investment, or equity, in an enterprise. (p. 13) Chart of Accounts - Answers - The official list of accounts tailor-made for the business. (p. 22) Liabilities - Answers - Debts or amounts owed to creditors. (p. 14) Revenues - Answers - Amounts earned by a business (fees for services, income from sales, rent income, interest earned for lending money). Expenses - Answers - The costs that relate to earning revenue (the costs of doing business); examples are wages, rent, interest, and advertising. They may be paid in cash immediately or at a future time (AP) (p.21) Account numbers - Answers - The numbers assigned to accounts according to the chart of accounts. (p. 22) Accounts - Answers - The categories under the Assets, Liabilities, and Owner's Equity headings. (p.16) Accounts Payable - Answers - A liability account used for short-term obligations or charge accounts, usually due within 30 days (p. 18) Accounts Receivable - Answers - An account used to record the amounts due from (legal claims against) charge customers. (p.27) Backups - Answers - Procedures that store company data files in a a safe place, such as online or on a flash drive. (p. 34) Cloud computing - Answers - Software that is used via the Internet instead of from a local computer. Software and data can be accessed anywhere there is an Internet connection. (p. 34) Computerized accounting - Answers - An accounting system that records transactions using a computer and accounting software such as QuickBooks. (p. 33)
Debit - Answers - The left side of a T account; to debit is to record an amount on the left side of a T account. Debits represent increases in asset, drawing, or expense accounts and decreases in liability, capital, or revenue accounts. (p. 62) Financial position - Answers - The resources or assets owned by an organization at a point in time, offset by the claims against those resources and owner's equity; shown on a balance sheet. (p. 78) Financial statement - Answers - A report prepared by accountants that summarizes the financial affairs of a business. (p. 76) Footings - Answers - The totals of each side of a T account. (p. 60) Income statement - Answers - A financial statement showing the results of business transactions involving revenue and expense accounts over a period of time. (p. 76) Net income - Answers - The result when total revenue exceeds total expenses over a period of time. (p. 76) Net loss - Answers - The result when total expenses exceed total revenue over a period of time. (p. 76) Normal balance - Answers - The plus side of a T account. (p. 60) PDF (portable document format) - Answers - An electronic file format that converts a printed document into an electronic image. (p. 85) Profit and loss statement - Answers - Another term for an income statement. (p. 83) Report form - Answers - The form of the balance sheet in which assets are placed at the top and liabilities and owner's equity are placed below. (p. 78) Slide - Answers - An error in placing the decimal point in a number. (p. 80) Statement of Owner's Equity - Answers - A financial statement showing the activity in the Owner's equity, or Capital account, over the financial period. (p. 77) T Account form - Answers - A form of account shaped like the letter T in which increases and decreases in the account may be recorded. One side of the T is for entries on the debit or left side. The other side of the T is for entries on the credit or right side. (p. 59) Transposition - Answers - An error that involves interchanging, or switching around, digits during the recording of a number. (p. 80)
Trial balance - Answers - A list of all account balances to prove that the total of all debit balances equals the total of all credit balances. (p. 75) Cost principle - Answers - The principle that a purchased asset should be recorded at its actual cost. (p. 115) Cross-reference - Answers - The ledger account number in the Post. Ref. column of the journal and the journal page number in the Post. Ref. column of the ledger account. (p.120) General ledger - Answers - A book or file containing the activity (by accounts), either manual or computerized, of a business. (p. 118) Journal - Answers - The book in which a person makes the original record of a business transaction; commonly referred to as a book of original entry. (p. 111) Journalizing - Answers - The process of recording a business transaction in a journal. (p. 111) Ledger account - Answers - A complete record of the transactions recorded in an individual account. (p. 118) Posting - Answers - The process of transferring figures from the journal to the ledger accounts. (p. 120) Source documents - Answers - Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place. (p. 111) Two-column general journal - Answers - A general journal in which there are two amount columns, one used for debit amounts and one used for credit amounts. (p. 113) The ________________ is used to determine where the amount in the ledger comes from. - Answers - posting reference (or cross-reference) (p. 144 Quiz) For a journal entry to be complete, it must contain _________________. - Answers - the date, a debit entry, a credit entry, and an explanation. (p. 144 Quiz) Transferring information from the journal to the ledger is called ______________. - Answers - posting What are some examples of source documents? - Answers - Canceled checks, vendor invoices, and receipts Accounting cycle - Answers - The sequence of steps in the accounting process completed during the fiscal period. (p. 167)
The ____________ represents the sequence of steps in the accounting process. - Answers - accounting cycle (p. 204 Quiz) On the work sheet, assets are recorded in which column? - Answers - Balance sheet, debit (p. 204 Quiz) Accrual basis of accounting - Answers - An accounting method under which revenue is recorded when it is earned, regardless of when it is received, and expenses are recorded when they are incurred, regardless of when they are paid. (p. 235) Cash basis of accounting - Answers - An accounting method under which revenue is recorded only when it is received in cash, and expenses ar recorded only when they are paid in cash. (p. 234) Closing entries - Answers - Income Summary account - Answers - Interim statements - Answers - Nominal (temporary-equity) accounts - Answers - Post-closing trial balance - Answers - Real (permanent) accounts - Answers - ATM (Automated Teller Machine) - Answers - Machines that enable depositors to make deposits, withdrawals, and transfers using a coded plastic card. (p. 274) Bank reconciliation - Answers - A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the Cash account in the business's general ledger. The object is to determine the adjusted (or true) balance of the Cash account. (p. 279) Bank routing number - Answers - A nine-digit number used by the Federal Reserve Bank to identify the financial institution of the account holder. (p. 276) Bank statement - Answers - A periodic statement that a bank sends to the drawer/depositor of a checking account listing deposits received and checks paid by the bank, debit and credit memos, electronic transactions, and beginning and ending balances. (p. 277) Canceled checks - Answers - Checks issued by the depositor that have been paid (cleared) by the bank and listed on the bank statement. They are called canceled checks because they are canceled by a stamp, indicating that they have been paid. (p.
Cash funds - Answers - Separately held reserves of cash set aside for specific purposes. (p. 272) Change Fund - Answers - A cash fund used by a business to make change for customers who pay cash for goods or services. (p. 293) Collections - Answers - Payments collected by the bank and added to the customer's bank account in the form of a credit memorandum. (p. 280) Denominations - Answers - Varieties of coins and currency, such as quarters, dimes, and nickels and $1 and $5 bills. (p. 290) Deposit in transit - Answers - 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 a late deposit. (p. 280) Deposit slips - Answers - Printed forms provided by a bank on which customers can list all items being deposited; also known as deposit tickts. (p. 273) Drawer - Answers - The party who writes the check. (p. 275) Electronic Funds Transfer (EFT) - Answers - A transfer of funds initiated through an electronic terminal, such as a telephone, computer, or magnetic tape. Endorsement - Answers - The process by which the payee transfers ownership of the check to a bank or another party. A check must be endorsed when deposited in a bank, because the bank must have legal title to it in order to collect payment from the drawer of the check (the person or firm who wrote the check). (p. 275) Errors - Answers - Mistakes made by a customer or the bank. (p. 280) Interest income - Answers - The amount earned from lending money to another person or business. (p. 280) Ledger balance of cash - Answers - The balance of the Cash account in the general ledger before it is reconciled with the bank statement. (p. 279) NSF (non-sufficient funds) check - Answers - Check drawn against an account in which there are not sufficient funds and returned by the payee's bank to the drawers bank because of nonpayment; also known as a dishonored check. (p. 280) Internal controls - Answers - Plans and procedures built into the accounting system with the following objectives: (1) to protect assets against fraud and waste, (2) to provide
Substitute check - Answers - The creation of a two-sided digital version of an original check. (p. 274) FICA taxes - Answers - Social Security taxes plus Medicare taxes, paid by both employee and employer under the provisions of the Federal Insurance Contributions Act. The proceeds are used to pay old-age and disability pensions and to fund the Medicare program. (p. 325) Gross pay - Answers - The total amount of an employee's pay before any deductions. (p. 323) Independent contractor - Answers - Someone who is engaged for a definite job or service and who may choose his or her own means of doing the work. This person is not an employee of the firm for which the service is provided. (p. 324) Net pay - Answers - Gross pay minus deductions. Also called take-home pay. (p. 323) Payroll bank account - Answers - A special checking account used to pay a company's employees. (p. 339) Medicare taxes - Answers - Federal government taxes levied on employees and employers; proceeds are used for medical insurance for eligible people aged 65 and over. (p. 325) Payroll register - Answers - A manual or computerized schedule prepared for each payroll period listing the earnings, deductions and net pay for each employee. (p. 334) Pre-tax deductions - Answers - Employee deductions that are not subject to income tax. The deductions include medical insurance premiums medical and dependent care expenses under a flexible spending pland, and 401(k) contributions. (p. 329) Social Security Act of 1935 - Answers - An act that provides for worker retirement funding through deductions from workers' wages and matching amounts from their employers. (p. 325) Social Security taxes - Answers - Federal government taxes levied on employees and employers; proceeds ar used for old-age pensions and disability benefits. (p. 325) Taxable earnings - Answers - The amount of an employee's earnings subject to a tax. (p. 329) Wage-bracket tax tables - Answers - A chart providing the amounts to be deducted for income taxes based on amount of earnings, marital status and number of allowances claimed. (p. 330)
Withholding allowance - Answers - An allowance claimed by an employee (on a W-4), which employers use to calculate the amount of income tax withheld from an employee's paycheck. (p. 329) Workers' compensation laws - Answers - Laws that protect employees and dependents against losses due to death or injury incurred on the job. (p. 326) (EFTPS) Electronic Federal Tax Payment System - Answers - Federal tax deposits are made using this system. Payments can be made 24 hours a day, 7 days a week. Businesses can schedule payments up to 120 days in advance of the due date. To be considered on time, tax deposits must be scheduld at least one calendar day prior to the due date. (p. 371) (EIN) Employer Identification Number - Answers - The number assigned to each employer by the Internal Revenue Service for use in the submission of reports and payments for FICA taxes and federal income tax withheld. (p. 367) (FUTA) Federal unemployment tax - Answers - A tax levied only on the employer that is equal to 0.6 percent of the first $7,000 of total earnings paid to each employee during the calendar year. This tax is used to administer the funds. (p. 369) Form 940 - Answers - An annual report filed by employers showing total wages paid to employees, total wages subject to federal unemployment tax, and other information. Also called the Employer's Annual Federal Unemployment (FUTA) Tax Return. (p. 382) Form 941 - Answers - A quarterly report showing the tax liability for withholdings of employees; federal income tax and FICA taxes and the employer's share of FICA taxes. Total tax deposits made in the quarter are also listed on thes Employer's Quarterly Federal Tax Return. (p. 375) Form 941-V - Answers - A payment voucher completed when making payments with the 941 report. (p. 376) Form W- 2 - Answers - A form containing information about employee earnings and tax deductions for the year. Also caled Wage and Tax Statement. (p. 380) Form W- 3 - Answers - An annual report sent to the Social Security Administration listing the total wages and tips, total federal income tax withheld, total Social Security and Medicare taxable wages, total Social Security and Medicare tax withheld, and other information for all employees of a firm. Also called the Transmittal of Wage and Tax Statements. (p. 381) Payroll Tax Expense - Answers - A general expense account used for recording the employer's portion of the FICA taxes, the federal unemployment tax, and the state unemployment tax. (p. 367)
freight charges. The buyer considers them purchase invoices; the seller considers them sales invoices. (p. 426) Merchandise inventory - Answers - Goods (an asset account) that a company buys and intends to resell at a profit. (p. 425) Merchandising businesses - Answers - Businesses that buy and sell goods. (p. 425) Periodic Inventory system - Answers - A method of recording inventory that requires the company to determine the amount of goods on hand by periodically taking a physical count and then attaching a value to it. (p. 425) Perpetual Inventory system - Answers - A method of recoring inventory that provides the firm with a running balance of inventory. (p. 425) Purchases account - Answers - An account for recording inventory that provides the firm with a running balance of inventory. (p 425) Purchases Returns and Allowances account - Answers - An account that records a company's return of merhandise it has purchased or a reduction in the bill for an agreed-upon reason; it is treated as a deduction from Purchases. (p. 436) Purchases journal (P) - Answers - Used to record purchases of merchandise purchased on account for resale only. Sales journal (S) - Answers - A special journal used to record sales of merchandise sold on account only. This specialized type of transaction calls for debits to Accounts Receivable and credits to Sales. (Don't duplicate the transaction in the general journal). (p. 447) Cash receipts journal (CR) - Answers - Used to record all transactions that include a debit to Cash such as cash sales, checks received, or interest earned on a checking account. Cash payments journal (CP) - Answers - Used to record all transactions that include a credit to Cash, such as payments by check or bank service charges. Special Journals - Answers - Books of original entry used to simplify the recording process. One or more of these journals may be used in a manual accounting system, or they may be used in certain computerized systems designed to facilitate specialized types of repetitive transactions. (p. 447) Sales account - Answers - A revenue account for recording the sale of merhandise. (p.
Sales Tax Payable Account - Answers - An account used to record a tax levied by a state or city government on the retail sale of goods and services. The tax is paid by the consumer but collected by the retailer. (p. 429) Subsidiary ledger - Answers - A group of accounts representing individual subdivisions showing the debits and credits of a controlling account. (p. 431) Sales Returns and Allowances account - Answers - The account a seller uses to record the physical return of merchandise by customers or reduction in a bill for an agreed- upon reason. Sales Returns and Allowances is treated as a deduction from Sales. This account is usually evidenced by a credit memorandum issued by the seller. (p. 428) Cash discount - Answers - The amount a customer can deduct for paying a bill within a specified period of time; used to encourage prompt payment. Not all sellers offer cash discounts. (p. 497) Cash payments journal - Answers - A special journal used to record all transactions involving cash payments or decreases to the Cash account. (p. 516) Cash receipts journal - Answers - A special journal used to record all transactions involving cash receipts or increases to the Cash account. (p. 511) Credit period - Answers - The time the seller allows the buyer before full payment on a charge sale has to be made. (p. 497) Notes Payable - Answers - The account containing the balance of promissory notes. (p.
Sales discount - Answers - A deduction from the original price granted by the seller to the buyer for the prompt payment of an invoice (p. 498) Trade discount - Answers - Substantial discounts from the list or catalog prices of goods, granted by the seller; not recorded by the buyer or the seller. (p. 508) Cash equivalents - Answers - Items included in the broad definition of cash. Included are short-term, highly liquid investments (for example, money market accounts, U.S. Treasury bills, and commercial paper) having maturities with a maximum of 90 days from the date aquired. (p. 633) Current Assets - Answers - Cash and any other assets or resources that are expected to be realized in cash or to be sold or consumed during the normal operating cycle of the business (or one year if the normal operating cycle is less than 12 months). (p. 616)
Liabilities are not involved in this transaction. - Answers - Effect: The company's asset account Cash increases and The proprietor's Capital account increases. Liabilities are not involved in this transaction. Transaction: The owner withdraws cash from the business for personal use. - Answers - Effect: The company's asset account Cash will decrease and The proprietorship's owner's equity decreases by an entry to the Drawing account. Liabilities are not involved in this transaction. Transaction: The company receives cash from a bank loan. - Answers - Effect: The company's asset account Cash increases and The company's liabilities (such as Notes Payable or Loans Payable) have increased. Owner's (Stockholders') Equity is not involved in this transaction. Transaction: The company repays the bank that had lent money to the company. - Answers - Effect: The company's asset account Cash decreased and The company's liabilities (such as Notes Payable or Loans Payable) have decreased. Owner's (Stockholders') Equity is not involved in this transaction. Transaction: The company purchases equipment with its cash Effect: The asset account Equipment increases, and another asset is also affected The asset account Cash decreases, and another asset is also affected. Liabilities and Owner's Equity are not involved in this transaction. - Answers - Effect: The asset account Equipment increases, and another asset is also affected The asset account Cash decreases, and another asset is also affected. Liabilities and Owner's Equity are not involved in this transaction. Transaction: The owner contributes his/her personal truck to the business. - Answers - Effect: An asset such as Trucks increased and The proprietor's Capital account increased. Liabilities are not involved in this transaction Transaction: The company purchases a significant amount of supplies on credit. - Answers - Effect: The company's asset account Supplies increases.The company's liability account Accounts Payable increases. Owner's (Stockholders') Equity is not involved in this transaction. Transaction: The company purchases land by paying half in cash and signing a note payable for the other half. - Answers - Effect: The asset Land has increased. Liabilities (Notes Payable account) have increased and the asset Cash has decreased. Owner's (Stockholders') Equity is not involved in this transaction. In May, Consulting Company X provides services for and bills Client Q then records the transaction by a debit to Accounts Receivable for $5,000 and a credit to Service Revenues for $5,000.
What is the effect of this entry upon the accounting equation for Company X? - Answers
- Effect: The asset Accounts Receivable increased and Revenues cause Owner's (Stockholders') Equity to increase. Liabilities are not involved in this transaction. T account form - Answers - A form of account shaped like the letter T in which increases and decreases in the account may be recorded Trial balance - Answers - A list of all account balances to prove that the total of all debit balances equals the total of all credit balances Credit - Answers - The right side of a T account Net income - Answers - The result when total revenue exceeds total expenses over a period Income statement - Answers - A financial statement showing the results of business transactions involving revenue and expense accounts over a period of time Financial statement - Answers - A report prepared by accountants that summarizes the financial affairs of a business Debit - Answers - The left side of a T account Statement of owner's equity - Answers - A financial statement showing the activity in the owner's equity, or Capital account, over the financial period Normal balance - Answers - The plus side of a T account compound entry - Answers - A transaction that requires more than one debit or more than one credit to be recorded. Footings - Answers - The totals of each side of a T account Report form - Answers - The form of the balance sheet in which assets are placed at the top and liabilities and owner's equity are placed below Balance sheet - Answers - A financial statement showing the financial position of an organization on a given date, such as June 30 or December 31. Net loss - Answers - The result when total expenses exceed total revenue over a period of Financial position - Answers - The resources or assets owned by an organization at a point in time, offset by the claims against those resources and owner's equity
