Accounting Basics The Accounting Cycle and Bookkeeping Flashcards

24 sample cards from the The Accounting Cycle and Bookkeeping deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is a slide error in accounting?

   An error where the decimal point is misplaced (e.g., \$100.00 recorded as \$10.00 or \$1,000.00); the difference is a power of 10 and typically divisible by 9.

2. If a trial balance is out of balance, what quick check does dividing the difference by 2 provide?

   If the difference is evenly divisible by 2, an amount equal to half the difference may have been posted to the wrong side (debit instead of credit or vice versa).

3. Define accrual basis accounting.

   An accounting method that recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid.

4. Define cash basis accounting.

   An accounting method that recognizes revenue only when cash is received and expenses only when cash is paid.

5. State one key difference between accrual and cash basis accounting.

   Accrual basis records revenues/expenses when earned/incurred (matching them to the period), while cash basis records them only when cash changes hands; accrual gives a more accurate picture and complies with GAAP.

6. Which two accounting principles underpin accrual accounting?

   The revenue recognition principle (record revenue when earned) and the matching principle (record expenses in the same period as the related revenues).

7. Why are adjusting entries necessary at the end of a period?

   To update account balances so revenues and expenses are recorded in the correct period under the accrual basis, ensuring accurate financial statements before closing.

8. What are the main types of adjusting entries?

   Accrued revenues, accrued expenses, deferred (prepaid) expenses, unearned (deferred) revenues, and depreciation of fixed assets.

9. What is an accrued expense and how is it adjusted?

   An expense incurred but not yet paid or recorded (e.g., wages owed). Adjustment: debit the Expense and credit a Liability (payable).

10. What is an accrued revenue and how is it adjusted?

    Revenue earned but not yet received or recorded. Adjustment: debit an Asset (receivable) and credit the Revenue.

11. What is a prepaid (deferred) expense and how is its adjustment recorded?

    An expense paid in advance and initially recorded as an asset (e.g., prepaid insurance). Adjustment: debit the Expense and credit the Prepaid asset for the portion used up.

12. What is unearned (deferred) revenue and how is it adjusted?

    Cash received before the service/goods are provided, recorded as a liability. Adjustment: debit Unearned Revenue and credit Revenue for the portion earned.

13. What is depreciation?

    The systematic allocation of the cost of a fixed (tangible) asset over its useful life as an expense, reflecting the asset's use and wear over time.

14. Write the formula for annual straight-line depreciation.

    $$\text{Depreciation}=\frac{\text{Cost}-\text{Salvage Value}}{\text{Useful Life (years)}}$$

15. What is the adjusting entry to record depreciation?

    Debit Depreciation Expense and credit Accumulated Depreciation (a contra-asset account).

16. What is 'book value' (carrying value) of a fixed asset?

    $$\text{Book Value}=\text{Cost}-\text{Accumulated Depreciation}$$

17. Why is Accumulated Depreciation called a contra-asset account?

    Because it has a normal credit balance and is deducted from the related asset's cost on the balance sheet to show the asset's net book value, rather than reducing the asset account directly.

18. What is the Adjusted Trial Balance?

    A trial balance prepared after posting all adjusting entries; it proves debits still equal credits and provides the final account balances used to prepare the financial statements.

19. What is the purpose of a worksheet in the accounting cycle?

    An optional multi-column working paper that organizes the unadjusted trial balance, adjustments, adjusted trial balance, and financial statement columns to help prepare statements and closing entries accurately.

20. What are the typical column pairs on a 10-column worksheet?

    Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet—each with its own debit and credit columns.

21. When extending balances on the worksheet, which accounts go to the Income Statement columns?

    Revenue accounts (to the credit column) and expense accounts (to the debit column).

22. When extending balances on the worksheet, which accounts go to the Balance Sheet columns?

    Assets, liabilities, owner's capital, and drawings—assets and drawings to the debit column; liabilities and capital to the credit column.

23. On the worksheet, how is net income (or net loss) determined and balanced across the statement columns?

    Net income = Income Statement credit total minus debit total. Net income is added to the Income Statement debit side and the Balance Sheet credit side (a net loss is added to the opposite sides) so both column pairs balance.

24. Distinguish temporary accounts from permanent accounts.

    Temporary (nominal) accounts—revenues, expenses, and drawings—are closed to zero each period and their balances transferred to capital. Permanent (real) accounts—assets, liabilities, and owner's capital—carry their balances forward to the next period and are never closed.

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