AIPB Certification Flashcards

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Questions and Answers

What is a trial balance?

An ordered listing of all ledger accounts and their balances.

What are accrued expenses?

Expenses that have been incurred, but not yet paid for.

What is cash basis accounting?

An accounting method where payments received are recorded as income and payments made are recorded as expenses.

What is accrual basis accounting?

The method of accounting where revenue is recorded when earned, regardless of when the cash is received. Signup and view all the answers

What is accrued revenue?

Uncollected revenue that is earned but not yet received. Signup and view all the answers

What is unearned revenue?

Payment received for services not yet performed. Signup and view all the answers

What are prepaid expenses?

Expenses paid before they are incurred. Signup and view all the answers

What is the depreciable base of an asset?

The original cost less the residual value of a depreciable asset. Signup and view all the answers

What is bad debt expense?

An estimate of the portion of credit sales that the company does not expect to collect. Signup and view all the answers

What are common types of accounting errors?

Omission, accrual or deferral error, classification error, arithmetic mistakes, incorrect principle usage, and transposition errors. Signup and view all the answers

The difference between Accounts Receivable and Allowance for Doubtful Accounts is known as the ______.

Net realizable value Signup and view all the answers

What is a step in preparing financial statements?

Prepare the unadjusted trial balance from the general ledger accounts. Signup and view all the answers

What is the primary purpose of bank reconciliation?

To review information needed to bring company accounting records up to date. Signup and view all the answers

What are hash totals?

Total debits and credits from a trial balance. Signup and view all the answers

What does the post-closing trial balance verify?

That the general ledger is in balance after closing temporary accounts. Signup and view all the answers

What is a transposition error?

An error that occurs when two digits are reversed. Signup and view all the answers

Study Notes

Trial Balance and Accounting Fundamentals

Trial balance is a structured list of all ledger accounts with their corresponding balances.
Accrued expenses are obligations incurred but not yet paid, recorded by debiting expense accounts and crediting payable accounts, affecting both the income statement and balance sheet.
Cash basis accounting recognizes income upon receipt and expenses upon payment, allowing for straightforward income statement generation.
Accrual basis accounting, dictated by GAAP, mandates recording revenue when earned, regardless of cash receipt.

Revenue Recognition

Accrued revenue is earned but not received, recorded by debiting receivable accounts and crediting revenue accounts; failure to record understate both assets and revenues.
Unearned revenue reflects payments received for services not yet performed, recorded by crediting liability accounts, which later transfers to revenue upon service completion.
Prepaid expenses are payments made before incurring expenses, requiring appropriate adjustments to account for the portion used.

Depreciation and Bad Debts

Depreciable base is defined as the asset's original cost minus its residual value.
Depreciable assets must be tangible, not held for resale, and have a useful life exceeding a year; depreciation expense is recognized using the double-entry system.
Bad debt expense estimates uncollectible receivables; recorded by debiting bad debt expense and crediting Allowance for Doubtful Accounts.

Error Identification and Correction

Common accounting errors include omissions, accrual/deferral mistakes, classification issues, arithmetic errors, and misapplication of accounting principles.
Monthly bank reconciliation helps identify discrepancies between bank balances and company logs, addressing deposits in transit and outstanding checks.
To locate trial balance errors, verify account balance transfers, recalibrate errors in journal entries, and check for arithmetic mistakes.

Financial Statements and Accounting Procedures

Preparing financial statements involves drafting an unadjusted trial balance, incorporating adjustments, and preparing an adjusted trial balance for reporting.
The three types of trial balances are unadjusted, adjusted, and post-closing, facilitating different accounting processes.
Errors not revealed by the trial balance include unrecorded transactions, discrepancies in recorded amounts, and misclassifications.

Adjustments and Year-End Procedures

The post-closing trial balance ensures that only balance sheet accounts remain open after closing temporary accounts.
Current period errors are identified before period close, while prior period errors are discovered afterwards and require adjustments to retained earnings.
Bank reconciliation serves to update company records, verify account accuracy, and ensure bank statement correctness.

Accounting Controls and Procedures

Implementing double-entry bookkeeping maintains the balance of debits and credits, promoting reliable financial reporting.
The role of internal controls includes routine audits, monthly reconciliations, and periodic reviews for accuracy and reliability in accounting practices.

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Description

Prepare for your AIPB certification with these flashcards covering essential accounting terms like trial balance and accrued expenses. Each card provides clear definitions and explanations to enhance your understanding of key concepts. Test your knowledge and boost your confidence in accounting principles.