Acct Chapter 3 Study Guide PDF

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Summary

Course is taught by Janice Holmes as an introductory course into financial accounting, required to be take by all Business majors....

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Chapter 3: The Accounting Information System Study Guide (Note: This worksheet is intended as an optional study guide. Do not submit to the instructor.) Learning Objectives: 1. Analyze the effect of business transactions on the basic accounting equation. 2. Explain what an account is and how it helps in the recording process. 3. Define debits and credits and explain how they are used to record business transactions. 4. Identify the basic steps in the recording process. 5. Explain what a journal is and how it helps in the recording process. 6. Explain what a ledger is and how it helps in the recording process. 7. Explain what posting is and how it helps in the recording process. 8. Explain the purposes of a trial balance. 9. OMIT (Page 130): Classify cash activities as operating, investing, or financing. LO 1

1. Accounting Information System is: The system of collecting and processing transaction data and communicating financial information to decision-makers 2. Accounting Transactions are: Events that require recording in the financial statements because they affect assets, liabilities, or stockholders’ equity Assets, liabilities, or stockholders’ equity items change as a result of some economic event. There is a __recorded___ effect on the accounting equation.

3. Transaction Analysis is: The process of identifying the specific effects of economic events on the accounting equation

3 points about transaction analysis:  The Accounting Equation must always balance.  Each transaction has a dual (double-sided) effect on the equation.  Two or more accounts are impacted by a transaction. 4. Expanded Accounting Equation: Assets = Liabilities + Common Stock + Retained Earnings + Revenues – Expenses Dividends

ACCT 2001: Ch. 03

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LO 2 LO 5 LO 6 LO 7

5. Define the following and explain how it helps in the recording process: Definition

Purpose

Account

An individual accounting record of increases and decreases in specific asset, liability, stockholder’s equity, revenue, or expense items

Having separate accounts for Cash, Accounts Receivable, etc. makes it easier to keep track of each balance individually

Journal

An accounting record in which transactions are initially recorded in chronological order

For each transaction, the journal shows the debit and credit effects on specific accounts

Journalizing

The procedure of entering transaction data in the journal

To record the transaction with the date, accounts and amounts to be debited and credited, and a brief explanation of the transaction in the journal

Ledger

The group of accounts maintained by a company

Provides the balance in each of the accounts and tracks changes in these balances

Posting

The procedure of transferring journal entry amounts to the ledger amounts

Accumulates the effects of journalized transactions in the individual accounts

Chart of Accounts

A list of a company’s accounts

The number and type of accounts used differ for each company, depending on size, complexity, and type of business

ACCT 2001: Ch. 03

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LO 3

6. Debit = _left__ side of an account. Credit = __right_ side of an account. 7. For the account classifications listed in the following T-account, indicate the side to increase (+) and decrease (-) and the normal balance: Debit (Dr) + + +

Credit (Cr) -

Normal balance Dr Dr Dr

Liabilities Revenues Retained Earnings Capital Stock

-

+ + + +

Cr Cr Cr Cr

Revenues Expenses

+

+ -

Cr Dr

Asset Expense Dividend

ACCT 2001: Ch. 03

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LO 4

8. Steps in the Recording Process:

Analyze each transaction

ACCT 2001: Ch. 03

Enter transaction in a journal

Transfer journal information to ledger accounts

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LO 8

9. A Trial Balance is _a list of accounts and their balances at a given time_____ 10. Purposes of the Trial Balance: 1. Proves the mathematical equality of debits and credits after posting 2.

May uncover errors in journalizing and posting

3.

Is useful in the preparation of financial statements

11. Limitations of the Trial Balance: It does not prove that all transactions have been recorded or that the ledger is correct. Numerous errors may exist even though the trial balance column totals agree. For example, the trial balance may balance even when: 1.

A transaction is not journalized

2.

A correct journal entry is not posted

3.

A journal entry is posted twice

4.

Incorrect accounts are used in journalizing or posting

5.

Offsetting errors are made in recording the amount of a transaction

12. Know the definitions listed in the Glossary at the end of the chapter.

ACCT 2001: Ch. 03

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