Accounting Cycle Flashcards

Questions and Answers

What is the accounting cycle?

A sequence of accounting procedures used to record information (correct)

The increase in owners' equity from profitable operations

A record of transactions showing debits and credits

A financial statement summarizing business operations

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?

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.

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What is a journal in accounting?

A chronological record of transactions showing debits and credits. Signup and view all the answers

What does net income represent?

An increase in owners' equity from profitable operations, or the excess of revenue over expenses. Signup and view all the answers

What are retained earnings?

The total net income of a corporation over its lifetime, less any dividends paid. Signup and view all the answers

What is the purpose of an income statement?

To summarize the results of operations by matching revenue and related expenses for a specific period. Signup and view all the answers

What is the realization principle?

The accounting principle determining when revenue should be recorded. Signup and view all the answers

What is the matching principle?

An accounting principle that determines when expenses should be recorded in relation to revenue. Signup and view all the answers

What does the accrual basis of accounting require?

Revenue is recorded when earned and expenses are recorded when incurred. Signup and view all the answers

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.

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.