Accounting Midterm

• False - Posting is done to complete the journalizing process. (T/F)
• True - Posting is in itself the classifying function of accounting. (T/F)
• False - Footing is considered an entry posted in the General Ledger. (T/F)

• False - An error in the trial balance can be discovered upon audit of the accounts. (T/F)
• True - When the trial balance is "in balance" we take an assumption that no error has been committed in both journalizing and posting. (T/F)
• True - A trial balance will not disclose an error, if the error is a journal entry that has not been posted in its entirety. (T/F)
• False - Posting an entry twice in the general ledger will cause the trial balance to be "out of balance". (T/F)
• True - The arrangement of account in the general ledger is patterned from chart of accounts. (T/F)
• True - The primary purpose of the trial balance is to check the arithmetical and mathematical amount posted from the journal entries. (T/F)
• True - Omission in posting either debit or credit entry in the journal will affect the total of a trial balance. (T/F)
• Summarizing/ Classifying - What functions do the general ledger served in the accounting process?
• The general ledger serves as a summary record of all transactions recorded in the books of original entry.
• Source documents identify and describe transactions and events entering the accounting process. These original written evidences contain information about the nature and the amounts of the transactions.
• ·        accounting cycle refers to a series of sequential steps or procedures performed to accomplish the accounting process.
• journal is a chronological record of the entity’s transactions. A journal entry shows all the effects of a business transaction in terms of debits and credits.
• 1.      Account Titles and Explanation. The account to be debited is entered at the extreme left of the first line while the account to be credited is entered slightly indented on the next line. A brief description of the transaction is usually made on the line below the credit. Generally, skip a line after each entry.
• 1.      Date. The year and month are not rewritten for every entry unless the year or month changes or a new page is needed.
• P.R. (posting reference). This will be used when the entries are posted, that is, until the amounts are transferred to the related ledger accounts
• Journalizing – the process of recording a transaction
• ·        In a simple entry, only two accounts are affected – one account is debited and the other account is credited.
• ·        When three or more accounts are required in a journal entry, the entry is referred to as a compound entry.
• Source documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.
• ·        A grouping of the entity’s accounts is referred to as a ledger.
• ·        general ledger is the reference book of the accounting system and is used to classify and summarize transactions, and to prepare data for basic financial statements.
• Compared to a journal, a ledger organizes information by account
• Chart of Accounts

  ·        A listing of all the accounts are their account numbers in the ledger

  ·        Accounts and account numbers arranged in sequence in which they are presented in the financial statements.
• Posting- process of transferring amounts from the journal to the ledger accounts
• The Trial Balance is a list of all accounts with their respective debit or credit balances. It is prepared to verify the equality of debits and credits in the ledger at the end of each accounting period or at any time the postings are updated.
• The Trial Balance is a control device that helps minimize accounting errors.
• Locating Errors

  An inequality in the totals of the debits and credits would automatically signal the presence of an error.
• Timing Issues

  Accountants divide the economic life of a business into artificial time periods

  · Also known as the “Periodicity Assumption”
• Revenue Recognition Principle

  ·        Recognize revenue in the accounting period in which it is earned.
• Expense Recognition Principle

  ·        Match expenses with revenues in the period when the company makes efforts to generate those revenues.

  ·        “Let the expenses follow the revenues.”
• Accrual - Basis Accounting

  ·        Transactions recorded in the periods in which the events occur.

  ·        Revenues are recognized when earned, rather than when cash is received.

  ·         Expenses are recognized when incurred, rather than when paid.
• Cash- Basis Accounting

  ·Revenues recognized when cash is received.

  · Expenses recognized when cash is paid.

  ·Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).
• ®    Adjusting Entries are journal entries which are to be recorded in the General Journal and are usually prepared at the end of an accounting period following the preparation of a Trial Balance.
• Trial Balance – Each account is analyzed to determine whether it is complete and upto-date.
• Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed.
• Unearned Revenues. Cash received and recorded as liabilities before revenue is earned.
• Asset Method :

  ◆ Adjusting entry: ► Increase (debit) to an expense account and ► Decrease (credit) to an asset account.