JOURNAL ENTRY REVIEW QUIZ

Journalizing Process
1) Identify each account affected and its type (asset, liability, or stockholders' equity)
2) Determine if each account is increased or decreased (use rules of debit/credit)
3) Record transaction in the journal
- The debit side of the entry is entered first
- Total debits should always equal total credits.

Journal Entry has 4 parts:

1) date of transaction
2) title of account debited with dollar amount
3) title of account credited with dollar amount
4) brief explanation of transaction

After Journal entry...

copying amounts from Journal to the ledger

Ledger = long list, NOT Balance Sheet

THE ADJUSTING PROCESS

...

Accrual Basis vs Cash Basis

Accrual Basis- revenues are recognized when earned and expenses are recognized when incurred

Cash Basis- revenues are recognized when cash is received and expenses recorded when cash is paid
(NO!)

Revenue Principle
When to record revenue? -- when it is EARNED
- when the service is provided or product is delivered
- NOT necessarily the time cash is received

Matching Principle
measures all expenses incurred during the accounting period
match the expenses against the revenues earned during the SAME period

Adjusting Entries
Prepared at end of an accounting period (usually a year)
Assign:
- Revenues to the period when earned
- Expenses to the period when incurred
Update asset and liability amount

Need to properly measure:

- Net income
- Assets and liabilities

Adjusting Entry Rules

1) Never involve cash
2) Either increase revenue (revenue credit) or increase an expense (expense credit)
3) "Accrued" means amount must be recorded

Upgrade to remove ads

Only $2.99/month
Types of Adjusting Entries
1) Prepaid expenses
- Rent
- Insurance
* Recorded an as asset
2) Depreciation
- Land (NOT DEPRECIATED)
- Buildings
- Equipment
3) Accrued expenses (expenses incurred before payment is made)
- Salaries
- Interest
4) Accrued revenues (revenue earned before cash is received)
5) Unearned revenues

**Depreciation Entry:
Depreciation expense (Debit)
Accumulated deprec. (Credit)

**Accrued Expenses Entry:

Salaries expense (Debit)
Salaries payable (Credit)
Interest expense (Debit)
Interest payable (Credit)
**Accrued Revenues Entry:
Accounts Receivable (Debit)
Service Revenue (Credit)

**Unearned Revenue Entry:

Cash (Debit)
Service Revenue [or Unearned revenue if it was just cash] (Credit)

ADJUSTED TRIAL BALANCE

...

Adjusted Trial Balance

- Prepared after adjusting entries are posted

(So;; trial balance, adjustments, adjusted trial balance)

PREPARE FINANCIAL STATEMENTS FROM THE ADJUSTED TRIAL BALANCE

Income Statement
Retained Earnings Statement
Balance Sheet

The Accounting Cycle

Process by which companies produce their financial statements
Use of a work sheet summarizes needed data in one place

1) Journal Transaction (During period)

2) Post to Accounts (Ledger) (During period)
3) Adjust Accounts (End of period)
4) Prepare Financial Statements (End of Period)
5) Close Accounts (End of Period)

Worksheet (and steps)

Internal summary device... NOT a journal, ledger, or financial statement

1) Enter account titles and their unadjusted balance in the Trial Balance columns
2) Total the amounts
3) Enter the adjusting entries in the Adjustments columns
4) Total the amounts
5) Compute each account's adjusted balance by combing the Trial Balance and Adjustment Figures
6) Enter each account's adjusted amount in the Adjusted Trail Balance columns
7) Draw imaginary line above the first revenue account
8) Every account above goes to the Balance Sheet columns
9) Every account below goes to the Income Statement columns
10) On the income statement, compute net income (Revs - Exps)
11) Enter net income as the balancing amount
12) Also enter net income as a balancing amount on the balance sheet

Preparing Financial Statements from a Work Sheet

- both have the same account balances and net income (or loss)
- Worksheet = INTERNAL doc
- Financial Statements = EXTERNAL

CLOSING ACCOUNTS
...

Closing Accounts
Occurs at the end of the period
-Get accounts ready for next period
Zeroes out all revenues and all expense accounts
In order to measure each period's net income separately from all other periods

Temporary vs Permanent Accounts

Temporary
- Closed at the end of the period
(Revenues, expenses, dividends)
- Start next period with a zero balance

Permanent
- Not closed at the end of the period
(Assets, Liabilities, Common Stock, Retained Earnings)
- Ending balance carries forward to next period

To close accounts... (and 4 closing entries)

1) Transfer temporary accounts to Retained Earnings
2) Income summary account used in closing process
- summarized net income
- temporary holding tank
- closed into retained earnings

4 Closing Entries:
1) Close Revenues
Service revenue (Debit)
Income summary (Credit)
2) Close expenses
Income summary (Debit)
Salaries Expense (Credit)
Supplies Expense (Credit)
Depreciation Expense (Credit)
3) Close Income Summary
Income summary (Debit)
Retained earnings (Credit)
4) Close Dividends
Retained earnings (Debit)
Dividends (Credit)

Post-Closing Trial Balance

- List of permanent accounts and their balances after posting closing entries
- Total debits and credits MUST EQUAL
- Same accounts as on the Balance Sheet

FINAL THOUGHTS AND POINTS

...

FINANCIAL STATEMENTS

1) Income Statement (Revenues - Expenses = Net income)

2) Retained Earnings Statement (Old Net income + New Net income - Dividends = Ending Net Income)

3) Balance Sheet (Assets on one side, Liabilities & Equity on other... SHOULD EQUAL)
...

ACCOUNTING PROCESS

1) Journal (list of credited and debits accounts in chronological order

2) Ledger (T accounts, with ending balance at bottom of each one)

3) Trial Balance (List of all assets, liabilities, equity, revenue, and expenses) -- CREDITS & DEBITS EQUAL
...

3 things you debit, 4 things you credit?

DEBIT
- Assets
- Dividends
- Expenses
CREDIT
- Liabilities
- Retained earnings
- Common stock
- Revenues

Normal Balance = what increases the account

ADJUST ENTRIES -- made to Trial Balance (Put adjustments and original side by side... THEN Adjusted
Trial Balance)
...

FINANCIAL STATEMENTS AFTER ADJUSTED TRIAL BALANCE

Pick out what part of the trial balance is the Balance sheet (assets, liabilities, equity)... and what part is
Income statement (revenues, expenses)

Do Income Statement
Retained Earnings Statement
Then Balance Sheet
...

WORKSHEET = everything together

...

CLOSE --> Revenues, Expenses, Dividends

Temporary Accounts = Transfer to Retained Earnings

Closed Revenues = Income Summary (Credit)

Closed Expenses = Income Summary (Debit)
Closed Income Summary = Debit / Retained Earnings = Credit
Closed Dividends = Retained Earnings (Debit) / Dividends (Credit)
...

POST CLOSING TRIAL BALANCE = list of permanent accounts (Debits & Credits EQUAL)
...

Classified Balance Sheet = current or long term assets, liabilities, and equity
...
journal
form for recording transactions in chronological order

journalizing
recording transactions in a journal

entry
information for each transaction recorded in a journal

general journal
a journal with two amount columns in which all kinds of entries can be recorded

double-entry accounting
the recording of debit and credit parts of a transaction

source document
a business paper from which information is obtained for a journal entry

check
a business form ordering a bank to pay cash from a bank account

invoice
a form describing the goods or services sold, the quantity, and the price

sales invoice
an invoice used as a course document for recording a sale on account

receipt
a business form giving written acknowledgement for cash received

memorandum
a form on which a brief message is written describing a transaction

journal
form for recording transactions in chronological order

journalizing
recording transactions in a journal

entry
information for each transaction recorded in a journal
general journal
a journal with two amount columns in which all kinds of entries can be recorded

double-entry accounting
the recording of debit and credit parts of a transaction

source document
a business paper from which information is obtained for a journal entry

check
a business form ordering a bank to pay cash from a bank account

invoice
a form describing the goods or services sold, the quantity, and the price

sales invoice
an invoice used as a course document for recording a sale on account

receipt
a business form giving written acknowledgement for cash received

memorandum
a form on which a brief message is written describing a transaction

code of conduct
a statement that guides the ethical behavior of a company and its employees

checking account
a bank account from which payments can be ordered by a depositor

endorsement
a signature or stamp on the back of a check transferring ownership

blank endorsement
an endorsement consisting only of the endorser's signature

special endorsement
an endorsement indicating a new owner of a check

restrictive endorsement
an endorsement restricting further transfer of a check's ownership
postdated endorsement
a check with a future date on it

bank statement
a report of deposits, withdrawals, and bank balances sent to a depositor by a bank

dishonored check
a check that a bank refuses to pay

electronic funds transfer

a computerized cash payment system that transfers funds without the use of checks, currency, or other
paper documents

Upgrade to remove ads

Only $2.99/month
debit card
a bank card that automatically deducts the amount of a purchase from the checking account of the
cardholder

petty cash
an amount of cash kept on hand and used for making small payments

petty cash slip

a form showing proof of a petty cash payment

fiscal period
The length of time for which a business summarized and reports financial information

work sheet
a columnar accounting form used to summarize the general ledger information needed to prepare
financial statement

trial balance
a proof of the equality of debits and credits in a general ledger

adjustments
changes recorded on a work sheet to update general ledge accounts at the end of a fiscal period

balance sheet
a financial statement that reposts assets, liabilities, and owner's equity on a specific date
income statement
A financial statement showing the revenue and expenses for a fiscal period

net income
the difference between total revenue and total expenses when total revenue is greater

net loss
the difference between total revenue and total expenses when total expense are greater

T account
an accounting device used to analyze transactions

Debit
an amount recorded on the left side of a T account

Credit
an amount recorded of the right side of a T account

Normal balance
the side of the account that is increased

Chart of accounts
a list of accounts used by a business

accounting
planning, recording, analyzing, and interpreting financial information

accounting system
a planned process for providing financial information that will be useful to management

accounting records
organized summaries of a business's financial activities

financial statements
financial reports that summarize the financial conditions and operations of a business

Upgrade to remove ads

Only $2.99/month
service business
a business that performs and activity for free
proprietorship
a business owned by one person

asset
anything of value that is owned

equities
financial rights to the assets of a business

liability
an amount owed by a business

owner's equity
the amount remaining after the value of all liabilities is subtracted from the value of all assets

accounting equation
an equation showing the relationship among assets, liabilities, and owner's equity.

ethics
the principles of right and wrong that guide an individual in making decisions

business ethics
the use of ethics in making business decisions

transaction
a business activity that changes assets, liabilities, or owner's equity

account
a record summarizing all the information pertaining to a single item in the

accounting equation
an equation showing the relationship among assets, liabilities, and owner's equity.

account title
the name given to an account

account balance
the amount in an account

capital
the account used to summarize the owner's equity in a business
revenue
an increase in owner's equity resulting form the operation of a business

sale on account
a sale for which cash will be received at a later date

expense
a decrease in owner's equity resulting from the operation of a business is called an expense

withdrawals
when assets are taken out of a business for the owner's personal use are called withdrawals
profit is the difference between
the assets received for goods and services and the amounts used to provide the goods and services