Financial Accounting Chapter 2- Review of the Accounting Process

External Events

Involve an exchange transaction with another entity.

Internal Events

Do not involve an exchange transaction with another entity.

Permanent Account

Don’t close out

Temporary Account

Do close out

Subsidiary Account

Associated with a particular general ledger control account and are maintained in separate subsidiary ledgers.

Step 1 in the Accounting Cycle

Obtain information about external transaction for source documents.

Step 2 in the Accounting Cycle

Analyze transaction

Step 3 in the Accounting Process

Record the transaction in a journal.

Step 4 in the Accounting Process

Past from the journal to the general ledger accounts.

Step 5 in the Accounting Process

Prepare an unadjusted trial balance.

Accounts that increase for debits and decrease for credits

Assets, dividends, and expenses.

Accounts that increase for credits and decrease for debit

Liabilities, revenue, and owners equity.

What accounts are in the trial balance? (In order)

Assets, Liabilities, Equity, and Revenue

Accruals

Involve cash flows that occur after either expense or revenue recognition. (“Action first, Dollars later”)

Double-Entry System

Refers to the dual effect that each transaction has on the accounting equation. (Debits=Credits)

General Ledger

Collection of accounts

Trial Balance

List of accounts and whats in them.

Deferred Revenue

Cash received from customers in advance of providing a good or service.

Interest Formula

Principal x Rate x Time (x/12)