ACC 205 Chapter 2

What is the accounting cycle?

A series of steps used to record, summarize, and report financial information.

What is the first step of the accounting cycle?

Analyze business transactions.

What is journalizing?

Recording transactions in the general journal in chronological order.

What is posting?

Transferring journal entries to the ledger accounts.

What is a trial balance?

A list of accounts and balances to prove equality of debits and credits.

What do adjusting entries do?

Ensure correct reporting of revenues, expenses, assets, and liabilities.

When are adjusting entries required?

Every time financial statements are prepared.

What are deferrals?

Cash occurs first, recognition happens later.

What are accruals?

Recognition happens first, cash occurs later.

What are prepaid expenses?

Expenses paid in cash before they are used.

What is the adjusting entry for prepaid expenses?

Increase expense and decrease asset.

What are unearned revenues?

Cash received before services are performed.

What is the adjusting entry for unearned revenues?

Decrease liability and increase revenue.

What are accrued revenues?

Revenues earned but not yet received or recorded.

What is the adjusting entry for accrued revenues?

Increase asset and increase revenue.

What are accrued expenses?

Expenses incurred but not yet paid or recorded.

What is the adjusting entry for accrued expenses?

Increase expense and increase liability.

What is the general ledger?

A collection of all accounts used by a company.

What is the general journal?

A chronological record of transactions.

What is a chart of accounts?

A list of account names and numbers used in the ledger.

What financial statements come from the adjusted trial balance?

Income statement, retained earnings statement, and balance sheet.

What are closing entries?

Entries that reset temporary accounts to zero.

Which accounts are closed?

Revenues, expenses, and dividends.

Which accounts are not closed?

Assets, liabilities, and stockholders’ equity.

What is the purpose of closing entries?

Transfer temporary account balances to retained earnings.