C5 Booking It: The Process Behind Financial Accounting

Question 1

accounting paraprofesional

Answer 1

this means that a person may not have any specific education, experience or licensing related to accounting.

Question 2

trun·cate

Answer 2

verb

past tense: truncated; past participle: truncated

shorten (something) by cutting off the top or the end.

synonyms: shorten, cut, cut, abbreviate,

Question 3

Net assets = Owners’ Equity is a truncated version of the fundamental accounting equation because

Answer 3

this version of the equation just moves the liabilities to the other side of the equal sign; net assets are all assets minus all liabilities.

Net assets = Owners’ Equity

Net assets - Liabilities = Owners Equity

Net assets = Liabilities + Owners Equity

Question 4

the term net worth cannot be used interchangably with owners’ equity because…?

Answer 4

GAAP does not allow accountants to restate assets to their actual value (fair market value), which would be required to calculate a company’s net worth (not book value).

Question 5

ac·count

Answer 5

a record or statement of financial expenditure and receipts relating to a particular period or purpose

Question 6

chart of accounts

Answer 6

is a created list of the accounts (basically a map for the codes on the GL) used by an organization to define each class of items for which money or the equivalent is spent or received.

It is not a financial report.

Question 7

Chart of Accounts

Number Sequence Account Type ?

1000 to 1999

2000 to 2999

3000 to 3999

4000 to 4999

5000 to 5999

6000 to 7999

8000 to 9999

Answer 7

Number Sequence Account Type ?

1000 to 1999 Assets

2000 to 2999 Liabilities

3000 to 3999 Equity

4000 to 4999 Income

5000 to 5999 Cost of goods sold expenses

6000 to 7999 Operating G&A

8000 to 9999 Non-business related items of income and expense

Question 8

Assets and expenses are always ____ to add to them and _____ to subtract from them.

Answer 8

Assets and expenses are always debited to add to them and credited to subtract from them.

Question 9

Liability, equity and revenue accounts are always ____ to add to them and _____ to subtract from them.

Answer 9

Liability, revenue and equity accounts are always credited to add to them and debited to subtract from them.

Question 10

Before you enter an event into a business accounting system you have to consider the the transaction methodology, a five step process for deciding the correctness of whatever entry you are preparing. What are the 5 steps?

Answer 10

1. Whats going on, the event: did the company buy a piece of equipment or sell some product?
2. Which accounts does this event affect?
3. How are the accounts affected (debit or credit)?
4. Do all debits for an entry equal the credits for the same entry?
5. Does the entry make sense? do the actions you take match the circumstances of the business event? (although the net affect on the books is the same you cannot credit and expense to record revenue)

Question 11

journal

Answer 11

is a record of financial transactions in order by date (the day to day recording of events).

Traditionally, a journal has been defined as the book of original entry.

Question 12

cash

Answer 12

in accounting, cash is a generic term for any payment method that is assumed to be automatic

Question 13

2 types of cash journals?

Answer 13

1. Cash receipts journal
2. Cash disburements journal

Question 14

2 most common accrual journals

Answer 14

1. Sales Journal
2. Purchase Journal

Question 15

3 most common special journals

Answer 15

1. Payroll journal
2. Purchases return and allowance journal
3. Sales returns and allowance journal

Question 16

2 general journals

Answer 16

1. Adjusting journal entries
2. Closing journal entries

Question 17

sales journal records all sales that a business makes to a customer on account, which means…?

Answer 17

no money changes hands between the company and its customer at the time of sale

Question 18

a sales journal affects two different accounts…?

Answer 18

accounts receivable and sales (revenue), both accounts are always affected by the same dollar amount

Question 19

products returned by customers after sales are done are not recorded in the sales journal but where?

Answer 19

general journal

Question 20

purchase journals are used record transactions when?

Answer 20

anytime a business buys using credit (on account)

Question 21

adjusting journal entries: one key reason you would adjust journal entries is to..?

Answer 21

make sure the accounting books are recording using the accrual method (reclassifying entries to actual).

Question 22

closing journal entries

Answer 22

Are to zero out all temporary accounts, which reflect all the revenue and expenses for a certain time period. You then transfer the net amounts to the balance sheet. You take this to set the income statements to zero so you know exactly how much revenue and expense are booked during a certain time period.

Question 23

ledger

Answer 23

principal book or computer file for recording and totaling economic transactions by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.

Question 24

a ledger records applicable transactions taking place in a company during a…?

Answer 24

particular accounting cycle

Question 25

the ledger fuctions

Answer 25

ledger serves as a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers. A company’s financial statements are generated from summary totals in the ledgers.

The chart of accounts serves as a map for the ledger accounts

Question 26

general ledger fuction

Answer 26

lists all the transactions taking place in all the accounts during the specified accounting period

Question 27

sub·sid·i·ar·y

Answer 27

adjective

1. less important than but related or supplementary to something.
   synonyms: subordinate, secondary, ancillary,

Question 28

the payroll ledger and the accounts receivable ledger would be considered _____ ledgers

Answer 28

subsidiary

Question 29

when you post to the ledgers you simply take the accounts and the numbers from the transactions you enter into the journals and record them in the correct ledger. If a subsidiary ledger (AR) is the first point of recording the transaction the amount flows through to the _________ combining with all other customers owing the business money to show a grand total of the accounts receivable.

Answer 29

when you post to the ledgers you simply take the accounts and the numbers from the transactions you enter into the journals and record them in the correct ledger. If a subsidiary ledger (AR) is the first point of recording the transaction the amount flows through to the general ledger, combining with all other customers owing the business money to show a grand total of the accounts receivable.

Question 30

Trial balance: is a listing of all the accounts in the general ledger and the balance they hold as of the date of the report. The purpose of the trial balance is…?

Answer 30

to make sure all the debits equal credits

Accountants also use it as a front-line tool to review the accuracy of the financial statements