Transaction Analysis in Accounting
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Questions and Answers

What are the steps involved in transaction analysis?

  • Determine the source of the transaction, evaluate financial statements, create a journal entry, and finalize reports.
  • Record the transaction, verify its accuracy, classify the accounts involved, and prepare financial summaries.
  • List all transactions, group them by type, analyze their impact, and summarize findings.
  • Identify the transaction, determine accounts affected, assess increases or decreases, and apply debit/credit rules. (correct)

In double-entry accounting, what must always be true about debits and credits?

  • Credits can be recorded without corresponding debits.
  • Debits must only be recorded in earnings accounts.
  • The total debits must exceed total credits.
  • The total debits and credits must equal each other. (correct)

Which of the following accounts is increased by a debit?

  • Income
  • Liabilities
  • Owner's Equity
  • Assets (correct)

What does the accounting equation represent?

<p>Liabilities + Owner’s Equity = Assets (D)</p> Signup and view all the answers

Which mnemonic can help remember the normal balance of accounts?

<p>EWAN (A)</p> Signup and view all the answers

What accounts are affected when cash is paid for office equipment and part of the balance is placed on account?

<p>Office Equipment, Cash, and Accounts Payable (C)</p> Signup and view all the answers

What will be the effect on the accounting equation after the office equipment transaction?

<p>Assets increase and liabilities increase (D)</p> Signup and view all the answers

When consulting revenues are recognized, which accounts are impacted?

<p>Cash and Owner's Equity (C)</p> Signup and view all the answers

For the advance fees received for consulting referrals, which account should be credited?

<p>Unearned Revenues (C)</p> Signup and view all the answers

What is the total amount of cash collected from the bridal arrangements if each couple pays P8,800?

<p>P26,400 (C)</p> Signup and view all the answers

What impact does the transaction of acquiring office equipment have on the balance sheet?

<p>Total assets increase (C)</p> Signup and view all the answers

Which accounting rule is applied when recording an increase in cash from consulting fees?

<p>Assets are increased by debits (B)</p> Signup and view all the answers

What type of entry is required to record the office equipment purchase with both cash and accounts payable?

<p>Compound entry (C)</p> Signup and view all the answers

What is the primary purpose of source documents in accounting?

<p>To serve as proof of the existence of business transactions. (D)</p> Signup and view all the answers

What is the first step in the accounting process outlined?

<p>Identification of Events to be Recorded (C)</p> Signup and view all the answers

Which document is NOT considered a source document in the accounting process?

<p>General Ledger (D)</p> Signup and view all the answers

What is the main aim of preparing a trial balance?

<p>To ensure that debits and credits are equal. (A)</p> Signup and view all the answers

Which process follows the recording of transactions in the journal?

<p>Journal Entries are Posted to the Ledger (C)</p> Signup and view all the answers

What is the primary aim of the worksheet in the accounting cycle?

<p>To help prepare necessary adjustments and financial statements. (A)</p> Signup and view all the answers

Which term refers to the total revenues minus total expenses?

<p>Net Income (D)</p> Signup and view all the answers

What does the preparation of financial statements provide to decision-makers?

<p>Useful information for decision-making. (A)</p> Signup and view all the answers

What was the initial investment amount made by Yolanda Sayson, Besario into her wedding consultancy?

<p>P250,000 (B)</p> Signup and view all the answers

When assets increase due to the investment, how is it recorded in accounting?

<p>By debiting cash (B)</p> Signup and view all the answers

What recording method is applied when Rented office space is paid in advance?

<p>Debit to prepaid rent for P8,000 (D)</p> Signup and view all the answers

Which entry correctly reflects the payment for two months' rent in advance?

<p>Dr. Prepaid Rent P8,000 / Cr. Cash P8,000 (C)</p> Signup and view all the answers

What happens to liabilities when a promissory note for a loan is issued?

<p>Liabilities increase (B)</p> Signup and view all the answers

What rate of interest is associated with the loan from Metrobank?

<p>20% per annum (D)</p> Signup and view all the answers

How is the increase in assets from the loan recorded?

<p>Debit to cash (D)</p> Signup and view all the answers

Which of the following accounts is credited when the loan from Metrobank is recorded?

<p>Notes Payable (B)</p> Signup and view all the answers

What is the correct accounting entry when an asset increases?

<p>Debit to assets (B)</p> Signup and view all the answers

How are increases in liabilities recorded?

<p>Credit to liabilities (A)</p> Signup and view all the answers

What happens to owner's equity when the owner withdraws cash for personal expenses?

<p>Owner's equity decreases (A)</p> Signup and view all the answers

What is the primary purpose of a general ledger?

<p>To classify and summarize transactions (C)</p> Signup and view all the answers

Which accounts are classified as permanent accounts in the general ledger?

<p>Assets and liabilities (D)</p> Signup and view all the answers

What type of accounts gather information for a particular accounting period?

<p>Nominal accounts (D)</p> Signup and view all the answers

In which section of the ledger do you find the account number and journal reference?

<p>Account record (B)</p> Signup and view all the answers

What is the entry to record a $10,000 increase in cash associated with unearned referral revenues?

<p>Debit Cash, Credit Unearned Revenues (D)</p> Signup and view all the answers

Flashcards

Transaction Analysis

A process that analyzes the financial impact of business events, using the accounting equation to track changes in assets, liabilities, and equity.

Accounting Equation

The fundamental equation in accounting that shows the relationship between assets, liabilities, and owner's equity: Assets = Liabilities + Owner's Equity.

Source Documents

The documents that provide essential information about business transactions, such as sales invoices, receipts, and purchase orders.

Double-Entry System

A system that uses debits and credits to record every financial transaction. Each transaction must have a corresponding debit and credit entry.

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Debit

A journal entry that increases the balance of an account.

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Credit

A journal entry that decreases the balance of an account.

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Accounting Cycle

A systematic process used by businesses to accurately record, classify, and summarize financial transactions.

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Journal

A book used to record all business transactions in chronological order.

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Ledger

A collection of accounts that classifies and summarizes financial transactions into specific categories.

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Trial Balance

A statement that lists all accounts with their debit and credit balances, confirming the equality of debits and credits.

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Worksheet

A tool used to prepare financial statements, including adjusting entries to ensure accrual accounting principles are followed.

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Adjusting Entries

Adjustments made to account balances to reflect correct revenue and expense recognition in a given period.

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General Ledger

A central reference book that classifies and summarizes all financial transactions by account.

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Permanent Accounts

Accounts that reflect assets, liabilities, and owner's equity. Their balances usually carry over from one period to the next.

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Temporary Accounts

Accounts that reflect revenue, expenses, and withdrawals. Their balances are typically reset at the end of each accounting period.

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T-Account

A visual representation of an account, showing increases and decreases on opposite sides.

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Investing in a Business

An increase in cash (asset) and owner's equity, representing the investment of capital into a business.

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Paying Rent in Advance

An increase in prepaid rent (asset) and a decrease in cash (asset), representing a payment for rent before it's used.

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Receiving a Loan

An increase in cash (asset) and an increase in notes payable (liability), representing borrowing money from a lender.

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Purchasing Equipment on Credit

An increase in office equipment (asset), a decrease in cash (asset), and an increase in accounts payable (liability), representing purchasing equipment partly using credit.

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Providing Services

An increase in cash (asset) and an increase in consulting revenue (owner's equity), representing the provision of services and receiving payment.

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Receiving Advance Fees

An increase in cash (asset) and an increase in unearned referral revenue (liability), representing receiving payment for services that will be provided later.

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Withdrawing Cash for Personal Expenses

A decrease in cash (asset) and a decrease in owner's equity (withdrawal), representing taking cash out of the business for personal use.

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Journalizing and Posting

The process of recording all financial transactions in a journal, then posting them to the ledger to ensure accurate accounting.

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Journal Entries

Entries made in the journal that record financial transactions.

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Posting

The process of transferring information from the journal to the ledger to organize and summarize financial data.

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Preparing a Trial Balance

The account balances are transferred from the ledger to the trial balance to confirm the equality of debits and credits.

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Preparing Adjusting Entries

A process that helps reconcile revenue and expenses to ensure the correct financial picture is presented in the financial statements.

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Preparing Financial Statements

The process of preparing financial statements based on the information gathered through the accounting cycle.

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Study Notes

Transaction Analysis

  • Transaction analysis helps to understand the financial impact of business events
  • Transaction analysis uses the accounting equation to record changes in assets, liabilities, and equity
  • Transaction analysis follows these steps:
    • Identify the transaction and source documents
    • Indicate the accounts affected and if they are increased or decreased by the transaction
    • Determine whether to debit or credit the account using the rules of debit and credit

Basic Accounting Concepts

  • Debit increases assets, expenses, and withdrawals, while credit increases liabilities, owner’s equity, revenue, and beginning capital
  • The double-entry system ensures every transaction has a dual effect (one debit and one credit), keeping the accounting equation balanced

Source Documents

  • Source documents provide essential information about business transactions
  • Common source documents include:
    • Sales invoices
    • Official receipts
    • Purchase orders
    • Statements of account
    • Bank deposit slips
    • Checks

Accounting Cycle

  • Accounting cycle is a systematic process that ensures transactions are accurately recorded and summarized
  • Accounting cycle steps:
    • Identify events to be recorded
    • Record transactions in the journal
    • Post journal entries to the ledger
    • Prepare a trial balance to verify the equality of debits and credits
    • Prepare a worksheet including adjusting entries
    • Prepare financial statements

General Ledger

  • General ledger is the central reference book for accounting information
  • General ledger classifies and summarizes transactions
  • General ledger accounts can be either permanent (asset, liability, owner’s equity) or temporary (income, expense)
  • General ledger uses the T-account format, but offers additional information like account number and journal reference

Transaction Examples

  • Investing in a business: Increase in cash (asset) and owner’s equity
  • Paying rent in advance: Increase in prepaid rent (asset) and decrease in cash (asset)
  • Receiving a loan: Increase in cash (asset) and increase in notes payable (liability)
  • Purchasing equipment partly on credit: Increase in office equipment (asset), decrease in cash (asset), and increase in accounts payable (liability)
  • Providing services: Increase in cash (asset) and increase in consulting revenues (owner’s equity)
  • Receiving advance fees: Increase in cash (asset) and increase in unearned referral revenues (liability)
  • Withdrawing cash for personal expenses: Decrease in cash (asset) and decrease in owner’s equity (withdrawal)

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Related Documents

BCC-FAR-Chapter-3-Recording-Business-Transactions PDF

Description

This quiz delves into transaction analysis and its significance in understanding financial impacts within business events. It covers the accounting equation, the double-entry system, and the usage of source documents in recording transactions. Test your knowledge and recall of these fundamental accounting concepts.

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