Terms in this set (50)
Accrual basis of accounting
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.
Cash basis of accounting
an accounting method under which revenue is recorded only when it is received in cash, and expenses are recorded only when they are paid in cash.
Entries made at the end of a fiscal period to close off the revenue, expense, and Drawing accounts - that is, to make the balances of the temporary-equity accounts equal to zero. Also called "clearing the accounts."
Income Summary account
an account brought into existence as a debit to balance expense accounts or as a credit to balance revenue accounts in the closing entry process. The revenue and expense account balances are transferred to this account to allow calculations of net income or net loss.
Financial statements, covering a period that is less than 12 months, that are prepared during the fiscal year.
Nominal (temporary-equity) accounts
accounts that apply to only one fiscal period and that are to be closed at the end of that fiscal period. These are the revenue, expense, and drawing accounts.
Post-closing trial balance
The listing of the final balances of the real accounts at the end of the fiscal period.
Real (permanent) accounts
The accounts that remain open (assets, liabilities, and the Capital account in owner's equity) and have balances that will be carried over to the next fiscal period.
Name the third step in the accounting cycle
Prepare a trail balance
Name accounts to be closed during the closing process:
Income, Expenses and Drawing
How would you close revenues for the following:
Income from Services,
$20,400 credit balance
Income from Services, debit $20,400
Income Summary, credit $20,400
Name accounts that would appear on a post-closing trial balance:
Assets, liabilities, capital
(Cash, Accounts Receivable, Supplies, Prepaid Insurance, Equipment, Accumulated Depreciation, Equipment, Accounts Payable, Wages Payable, Capital)
Expenses are recorded when they are paid. This is an example of the __________ method of accounting.
Cash basis method
__________ are prepared during the fiscal year for periods of less than 12 months.
List the 9 steps in the accounting cycle:
3. Trial Balance
4. Adjusting entries
6. Journalize and post adjusting entries from worksheet
7. Financial Statements
8. Journalize and post closing entries.
9. Post-Closing Trial Balance
Name the 4 steps of the closing procedure:
Close accounts -REID:
Close REVENUE accounts into Income Summary
Close EXPENSE accounts into Income Summary
Close INCOME SUMMARY account into Capital account
Close DRAWING accounts into Capital account
A post-closing trial balance shows final balances of accounts remaining __________. It is the final proof that the debit balances equal the credit balances before the posting for new ___________ begins.
open, fiscal period
__________ __________ consist of year to date income statements, statements of owner's equity and balance sheets of various dates during the fiscal period.
The net income appears on every statement except:
the balance sheet
Record this entry:
withdrawal of $1000 cash for personal use by the business owner.
Debit $1000 Drawing and credit $1000 cash
The balance of Prepaid insurance before adjustments at the end of the year is $600. This represents 6 months insurance paid Nov. 1. If no adjusting entry was made on Nov 30, what adjusting entry should be made on Dec 31st?
Debit Insurance Expense, $200 and credit Prepaid Insurance, $200.
If an accountant fails to make an adjusting entry to record expired insurance at the end of a fiscal period, the omission will cause total expenses to be
total expenses to be understated
A company purchased equipment for $9000. At the time of purchase, the equipment had a useful life of 8 years and a trade in value of $1000 at the end of 8 years. Using the straight-line method, the amount of depreciation for the first year is:
If expenses are greater than revenue (net loss), the Income Summary account will be closed by a debit to
Credit Income Summary
In preparing closing entries, it is helpful to refer to which of the following columns of the work sheet first?
a. Balance Sheet columns
b. Adjusted Trial Balance columns
c. Income Statement columns
d. Adjusted Trial Balance AND Income Statement columns
e. None of the above
c. The Income Statement columns
The book of original entry
One to whom money is owed
Accounts that are partly income statement and partly balance sheet accounts
Assets - Liabilites =
A listing of the ending balances of all ledger accounts that proves the equality of total debits and total credits
The process of recording transactions in a journal
The left side of a T account
A business enterprise, separate and distinct from the person who owns its assets
The process of transferring accounts and amounts from the journal to the ledger
An account that is deducted from another account
Amounts owed by charge customers
Balance sheet accounts
Assets = Liabilities + Owner's Equity
Fundamental Accounting Equation
A bookkeeping device for referring from journal to ledger or ledger to journal
The right side of a T account
Allocation of the cost of a plant asset over its estimated life
Financial statement that shows the net results of operations
Accounts that belong to only one fiscal period and are closed out at the end of each fiscal period
A transaction that has two or more debits and/or credits
Spreadsheet used to record adjustments and provide balances to prepare financial statemtns
Excess of total expenses over total revenues
A period of 12 consecutive months
A book containing all of the accounts of a business
The cost of an asset minus its accumulated depreciation
Steps in the accounting process, completed during the fiscal period.