Accounting Cycle Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the first step in transaction analysis?

Determine the amount of change on each affected account

Identify the business transactions that do not affect the accounting equation

Calculate the adjusted trial balance

Determine affected accounts and classify them (correct)

Which type of transaction would NOT be classified as an accounting transaction?

Purchase of equipment for cash

Sale of merchandise on account

Signing a sales contract

Hiring or firing employees (correct)

In the accounting cycle, which step occurs after preparing financial statements?

Trial balance

Closing entries (correct)

Adjusting entries

Post-closing trial balance

What effect do revenues have on retained earnings?

They positively affect retained earnings Signup and view all the answers

What should happen to the accounting equation after analyzing a transaction?

It should balance Signup and view all the answers

What is the primary purpose of providing financial information?

To assist in decision-making by investors, lenders, and creditors Signup and view all the answers

Which characteristic ensures information is complete, neutral, and free from error?

Faithful Representation Signup and view all the answers

What does the continuity (going-concern) assumption imply?

The business will remain operational for the foreseeable future Signup and view all the answers

In the accounting cycle, what is the initial step before journalizing transactions?

Analyzing whether the financial position has changed Signup and view all the answers

What output is most likely generated from an accounting information system dealing with periodic business activities?

Financial Reports Signup and view all the answers

Which assumption supports the notion that the dollar's purchasing power remains stable over time?

Stable Monetary Unit Assumption Signup and view all the answers

What is the purpose of transaction analysis in the accounting cycle?

To determine if a financial position change can be measured in dollars Signup and view all the answers

Which of the following is an example of an output from journalizing transactions?

Journal Entries Signup and view all the answers

Which accounts are affected when a customer pays $2,000 and has a remaining balance of $1,000 for services provided?

Service Revenue, Cash, Accounts Receivable Signup and view all the answers

What is the correct journal entry for recording a service revenue of $3,000 where a customer pays $2,000 in cash and owes $1,000?

Dr. Cash 2,000, Cr. Service Revenue 3,000, Dr. A/R 1,000 Signup and view all the answers

How does a debit transaction impact assets according to the accounting rules?

It increases assets. Signup and view all the answers

In the accounting equation, which of the following components does Shareholders’ Equity include?

Retained Earnings and Capital Signup and view all the answers

When recording a transaction for the purchase of equipment for $50,000 cash, which account should be credited?

Cash Signup and view all the answers

What type of account is 'Service Revenue' classified as in terms of the financial statements?

Shareholders’ equity Signup and view all the answers

What does an increase in Accounts Receivable indicate?

Services rendered but not yet collected in cash Signup and view all the answers

During the posting to the ledger, what does each account in the ledger represent?

A separate record for individual accounts Signup and view all the answers

Study Notes

The Accounting Cycle

The accounting cycle outlines a series of steps businesses take to record, summarize, and report financial information.
The cycle starts with business activities and ends with the preparation of financial statements.

Transaction Analysis

Transaction Analysis is the process of identifying and analyzing business transactions to determine their impact on the accounting equation: Assets = Liabilities + Shareholders' Equity.
It involves three steps:
- Identify and classify affected accounts
- Determine the amount of change on each account
- Determine the direction of change (increase or decrease) for each account
- The accounting equation must be balanced after each analysis.

Journalizing

Journalizing is the process of recording business transactions in a chronological order in a journal.
Each entry consists of a debit and a credit, representing the dual effects of transactions on the accounting equation.
Debit represents:
- Increase in assets
- Recording expenses, losses and declared dividends
- Decreases in liabilities and shareholders equity
Credit represents:
- Decreases in assets
- Recording revenues and gains
- Increases in liabilities and shareholders equity

Posting to the Ledger

Posting is the process of transferring journal entries to the ledger, which is a book containing separate accounts for each element of the accounting equation.

Financial Reporting Standards

These standards provide a framework for preparing and presenting financial statements.
They aim to provide financial information that is useful to investors, lenders, and other creditors.
The standards are based on fundamentally qualitative characteristics such as:
- Relevance (predictive and confirmatory value, materiality)
- Faithful representation (complete, neutral, and free from error)
- Comparability
- Verifiability
- Timeliness
- Understandability

Recognition and Measurement Criteria

These criteria are used to determine when and how to record transactions in the accounts.
Assumptions used in accounting:
- Separate entity assumption: Business is a separate unit from owners
- Continuity (going-concern) assumption: Entity will continue to exist indefinitely
- Historical cost assumption: Assets recorded at purchase price
- Stable monetary unit assumption: Dollar’s purchasing power is stable over time

Accounting Information System

An information system that collects, processes, and reports financial data.
The system includes inputs, processing, and output stages.

Outputs of the Accounting Information System

Financial reports:
- Income Statement
- Statement of Retained Earnings
- Balance Sheet
- Statement of Cash Flows

Objective of Financial Reporting

To provide useful financial information to investors, lenders, and other creditors in making decisions about providing resources to an entity.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge on the accounting cycle, including steps in transaction analysis and journalizing. Understand how business transactions impact the accounting equation and learn the importance of recording each entry accurately.