LESSON 3 PRACTICE - THE ACCOUNTING INFORMATION SYSTEM 1. 2 3. 4 5. 6. 7. 8. 9. TRUE/FALSE A ledger is where a company first records transactions and other selected events. Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed. An example of an internal event would be a flood that destroyed a portion of a company's inventory All liability accounts and stockholders' equity accounts are increased on the credit side and decreased on the debit side. In general, debits refer to increases in account balances, and credits refer to decreases The first step in the accounting cycle is the journalizing of transactions and selected other events. One purpose of a trial balance is to prove that debits and credits are equal in the general ledger A general journal chronologically dists transactions and other events, expressed in terms of debits and credits to accounts. If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense. The book value of any depreciable asset is the difference between its cost and its salvage value The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet. The post-closing trial balance consists of asset, liability, stockholders equity, revenue and expense accounts It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period Total stockholders' equity consists of common stock and the earnings retained in the business 10. 11. 12 13 14. 15. 16. 17 18 19. The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions. An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries. 20. - THE ACCOUNTING INFORMATION SYSTEM - DEFINITIONS Provide clear, concise answers for the following. 1. What is the accrual-basis of accounting? 2. What is an accrued expense? 3. What is accrued revenue? 4. What is a prepaid expense? 5. What is uneared revenue? 1 THE ACCOUNTING INFORMATION SYSTEM - TERMINOLOGY In the space provided at the right, write the word or phrase that is defined or indicated. 1. Revenue and expense accounts. 2. An optional step in the accounting 2. cycle 3. A revenue collected, but not recognized. 3. 4. A revenue recognized, but not collected.4. 5 Asset, liability, and equity accounts. 5. 6. An expense paid, but not incurred 7. An expense incurred, but not paid. 2 6 FINANCIAL STATEMENTS The adjusted trial balance of Ryan Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31: 1. an income statement. 2. a retained earnings statement. 3. a balance sheet. - RYAN FINANCIAL PLANNERS Adjusted Trial Balance December 31, 2017 Credit Debit $ 3,900 2.200 1.800 16.000 MA Cash Accounts Receivable. Supplies Equipment Accumulated Depreciation Equipment. Accounts Payable Uneamed Service Revenue Common Stock Retained Earnings Dividends Service Revenue Supplies Expense. Depreciation Expense Rent Expense $ 4.000 3.800 5,000 10,000 4.400 INSIN ANKA 2.000 HEHEH 4.700 600 2.500 2.900 $1900 $321900