Vocabulary
Journal entries recorded to update general ledger accounts (i.e. Prepaid Insurance, Supples) at the end of a fiscal period.
What are Adjusting Entries?
Applied when changes in financial information are reported for a specific period of time in the form of financial statements
What is the Accounting Period Cycle?
Where are the adjustment amounts found to journalize the adjusting entries in the general journal?
What are the Adjustment columns of the worksheet
To close a temporary account, an amount equal to its balance is recorded where?
On the opposite side of its current balance. Adjustment is made to Income Summary.
A trial balance that is prepared after the closing entries are posted
What is Post Closing Trial Balance?
Accounts that are not closed at the end of the fiscal period. They are used to accumulate information from one fiscal period to the next.
What are Permanent Accounts?
What concept is being applied when: Supplies Expense has an up-to-date balance which is the value of the supplies used during the fiscal period.
What is Matching Expenses with Revenue?
What source document is used in the DOC. NO. in the general journal for adjusting entries?
No source documents are used. The heading Adjusting Entries is written in the middle of the Account Title column of the general journal.
Name 3 permanent accounts
Assets: Cash, Petty Cash, Accounts Receivable, Pre-paid Insurance Liabilities: Accounts Payable Capital
What three items are included in the heading of the post-closing trial balance?
What are: Company Name, Post-Closing Trial Balance and Date: Month, Day and Year
Accounts that are closed at the end of the fiscal period to start the next fiscal period with a zero (0) balance. Identify at least two.
What are Temporary Accounts: Sales, Expenses, Drawing and Income Summary
This accounting concept is applied when the same accounting procedures are followed in the same way each accounting period
What is Consistent Reporting?
Explain why you would make an adjustment to the Prepaid Insurance account
Insurance is typically paid in advance. If six months of insurance coverage is paid in January it would be inaccurate to charge the January expenses with coverage for February through June. The expenses incurred would not match the revenue earned.
What is the normal balance for the Income Summary Account?
The Income Summary does not have a normal balance. It is determined if there is either a net income or a net loss.
What accounts are included in the Post Closing Trial Balance?
-Only the accounts with balances -Permanent Accounts -Assets, Liabilities, Owner's Capital
Journal entries used to prepare temporary accounts for a new fiscal period
What are closing entries?
This accounting concept is applied when a source document is prepared for each transaction
What is Objective Evidence?
Explain the adjusting entry to update the Supplies account-- 1. How is it figured 2. What account is debited 3. What account is credited
1. The balance of the supply account is subtracted from the supplies on hand. 2. Supplies Expense is debited for that amount 3. Supplies Account is credited for that amount which decreases the balance of that account
Name 3 temporary Accounts that get closed at the end of the fiscal period
1. Sales 2. Expenses 3. Drawing 4. Income Summary
What are the first 4 steps in the Accounting Cycle for a Service Business?
What are: 1. Analyze Transactions 2. Journalize Transactions in the General Journal 3. Post the Journal Entries to the Ledger Accounts 4. Prepare the Worksheet
What is a real account? What is a nominal account?
A real account is a permanent account A nominal account is a temporary account
This accounting concept is applied when a business's financial information is recorded and reported separately from the owner's personal financial information
What is Business Entity?
What accounting concept is applied by posting adjusting entries?
What is Matching Expenses with Revenue
4 Steps for recording Closing Entries:
1. Close Sales into Income Summary 2. Close Expenses into Income Summary 3. Close Income Summary into Capital 4. Close the Drawing into Capital
What are the last four steps in the Accounting cycle for a Service Business?
5. Prepare Financial Statements (Balance Sheet and Income Statement) 6. Journalize Adjusting and Closing Entries 7. Post Adjusting and Closing Entries 8. Prepare a Post closing Trial Balance