Accounting Cycle of a Service and Merchandising Business

These flashcards cover key concepts and practices from the accounting cycle for both service and merchandising businesses, including adjusting entries, financial statements, and bookkeeping.

What are the two main types of adjusting entries in accounting?

Accruals and Deferrals.

In the accrual accounting method, what does the seller record when a sale occurs?

Revenue is recorded as Receivable.

What is the purpose of the allowance for doubtful accounts?

To account for estimated uncollectible accounts receivable.

How do you record depreciation in accounting?

Debit Depreciation Expense and Credit Accumulated Depreciation.

What is the formula for calculating net income?

Revenue - Expenses = Net Income.

What do current assets and non-current assets represent in a balance sheet?

Current assets are short-term assets used within a year, while non-current assets are long-term assets used for more than a year.

What do you do with the income summary at year-end if there is a net income?

Debit Income Summary and Credit Owner, Capital.

What is the key difference between a cash discount and a trade discount?

Cash discounts are recorded in the books and encourage early payment, while trade discounts are not recorded and encourage bulk orders.

What does FOB Shipping Point mean in freight terms?

The buyer pays for freight and owns the goods once they are shipped.

What journals are used for credit sales in a business?

Sales Journal.

What is a perpetual inventory system?

An inventory system that uses one account title, Merchandise Inventory, for all purchase activities.

What does the statement of changes in equity include?

Capital balance, additional investments, drawings, net income, and net loss.

How do you close the drawing account at the end of the accounting period?

Debit Owner, Capital and Credit Owner, Drawing.

What should be done with drawings in the equity section?

Record the ending capital balance only, not the drawings.

What account titles are used for selling activities in both periodic and perpetual inventory systems?

Sales, Sales Discount, Sales Returns and Allowances, and Freight Out.