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Questions and Answers
What is the accounting cycle?
What is the accounting cycle?
What are the eight specific steps of the accounting cycle?
What are the eight specific steps of the accounting cycle?
- Journalize transactions, 2) Post journal entries to ledger accounts, 3) Prepare a trial balance, 4) Make end-of-period adjustments, 5) Prepare adjusted trial balance, 6) Prepare financial statements, 7) Journalize and post closing entries, 8) Prepare an after-closing trial balance.
What are the three elements of an account?
What are the three elements of an account?
A title, a left side (debit side), and a right side (credit side).
Double-entry accounting requires both debit and credit entries of equal amounts to record every transaction.
Double-entry accounting requires both debit and credit entries of equal amounts to record every transaction.
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What is a journal in accounting?
What is a journal in accounting?
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What does net income represent?
What does net income represent?
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What are retained earnings?
What are retained earnings?
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What is the purpose of an income statement?
What is the purpose of an income statement?
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What is the realization principle?
What is the realization principle?
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What is the matching principle?
What is the matching principle?
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What does the accrual basis of accounting require?
What does the accrual basis of accounting require?
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Study Notes
Accounting Cycle Overview
- The accounting cycle consists of a sequence of procedures to record, classify, and summarize financial information regularly.
- Key steps include journalizing transactions, posting to ledgers, and preparing trial balances.
Steps in the Accounting Cycle
- The cycle typically includes eight steps:
- Journalize transactions
- Post entries to ledger accounts
- Prepare a trial balance
- Make end-of-period adjustments
- Prepare an adjusted trial balance
- Prepare financial statements
- Journalize and post closing entries
- Prepare an after-closing trial balance
Elements of an Account
- An account has three key elements:
- Title
- Debit side (left side)
- Credit side (right side)
Double-Entry Accounting
- Double-entry accounting requires equal debit and credit entries for each transaction to ensure balance.
Journal Function
- A journal provides a chronological record of transactions, indicating debits and credits for specific ledger accounts.
- The general journal is the simplest form of the journal.
Net Income Definition
- Net income increases owners' equity from profitable operations, defined as revenue minus related expenses over a specific period.
Retained Earnings Concept
- Retained earnings reflect the corporation's cumulative net income minus dividends paid to stockholders and are used to finance growth.
Income Statement Purpose
- An income statement summarizes operational results by matching revenue with related expenses, revealing net income or loss during an accounting period.
Realization Principle
- The realization principle dictates when revenue is recorded: revenue is recognized when services are rendered or goods are delivered.
Matching Principle
- The matching principle ensures that revenue earned in an accounting period is offset with the related expenses incurred, promoting accurate financial reporting.
Accrual Basis of Accounting
- Under the accrual basis, revenue is recorded when earned, and expenses are recorded when incurred, rather than when cash is received or paid.
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Description
Test your knowledge of the accounting cycle with these flashcards from Chapter 3. Learn about the sequence of accounting procedures that are essential for recording and summarizing financial information effectively. Challenge yourself to remember each step and definition accurately.
