Ch.2 The Accounting Information System Pt.1 Main

Accounting cycle

are the procedures that companies use to record transactions and prepare financial statements. 9 steps

Accounting Information System

collects and processes transaction data and communicates financial information to decision-maker

-The documents that provide evidence of the transactions.

-The records, trial balances, worksheets (spreadsheets), and financial statements that result.

Accural Basis Accounting

recognize revenue when the performance obligation is satisfied and expenses in the period incurred, without regard to the time of receipt or payment of cash.

Accrued Expenses

Expenses incurred but not yet paid or recorded at the statement date

Accrued Revenues

Revenues for services performed but not yet recorded at the statement date

Adjusted Trial Balance

A report of all transactions entered during an accounting period after the adjusting entries have been completed

Adjusting Entries

for revenues to be recorded in the period in which services are performed (performance obligations are satisfied) and for expenses to be recognized in the period in which they are incurred,

ensure that a company follows the revenue recognition and expense recognition principles.

Balance Sheet

Is a classified sheet that shows a summary of the financial balances of an individual or organization and the financial condition of a company at the end of a period

Book Value

the value of a business according to its books or accounts, as reflected on its financial statements. and/or the purchase of assets when bought

Chart of accounts

which lists the accounts and the account numbers that identify their location in the ledger.

Closing entries

a journal entry that's made at the end of the accounting period. It involves shifting data from temporary accounts on the income statement to permanent accounts on the balance sheet. also reset the temporary account balances to zero on the general ledger.

Closing Process

reduces the balance of nominal (temporary) accounts to zero in order to prepare the accounts for the next period’s transactions

Contra Asset Account

an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance.The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

credits (often represented as CR)

is a term that's used to mean "what is owed"

increase the value of liability, equity, revenue and gain accounts

Debits (often represented as DR)

means "what is due."

increase the value of asset, expense and loss accounts.

Depreciation

process of expensing (allocating) the cost of an asset over its useful life in a rational and systematic manner.

double entry accounting

a system records the dual (two-sided) effect of each transaction in appropriate accounts.

General Ledger

a set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports

contains all the asset, liability, and stockholders’ equity accounts,

General Journal

a book of original entries, in which accountants and bookkeepers record raw business transactions, in order according to the date events occur.

Income statement

a company's revenues, expenses and profitability over a period of time. It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement.

journal

a concise record of all transactions a business conducts

Journalizing

the system by which all business transactions are recorded for your financial records. A business transaction is first recorded in a journal, also called a Book of Original Entry

Ledger

an account or record used to store bookkeeping entries for balance-sheet and income-statement transactions.

Modified Cash Basis

is a mixture of the cash basis and the accrual basis. It is based on the strict cash basis but with modifications that have substantial support, such as capitalizing and depreciating plant assets or recording inventory.

Post closing Trial Balance

the report that lists all the accounts of a company and their balances after all adjustments and closing entries have been made.

Prepaid Expenses

Assets paid for and recorded before a company uses them

Retained earnings Statement

shows the accumulated profit of a company after dividend are paid to shareholders

Reversing Entry

accounting journal entries you make in a certain period to reverse, or cancel out, some entries of a previous accounting period. (is the exact opposite of the adjusting entry made in the previous period.)

statement of Cash Flows

reports the cash provided and used by operating, investing, and financing activities during the period.

Strict Cash Basis

recognizes revenues and expenses at the time cash is received or paid out. and Expenses and revenues aren't carefully matched on a month-to-month basis.

Transaction

are a business’s economic events recorded by accountants. May be external or internal.

Trial Balance

a report that lists the balances of all general ledger accounts of a company at a certain point in time

Unearned Revenue

company now has a performance obligation (liability) to provide service to one of its customers. Items like rent, magazine subscriptions, and customer deposits for future service

Worksheet(spreadsheet)

often facilitates the end-of-period (monthly, quarterly, or annually) accounting and reporting process. Use of a ___ helps a company prepare the financial statements on a more timely basis.