Chapter 03 Review - CHAPTER3REVIEW 1 .Thebasic...

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CHAPTER 3 REVIEW 1. Chapter 3 presents a concise yet thorough review of the accounting process. The basic elements of the accounting process are identified and explained, and the way in which these elements are combined in completing the accounting cycle is described. Procedures and the Double-Entry Recording Process 2. (S.O. 1) The accounting process can be described as a set of procedures used in identifying, recording, classifying, and interpreting information related to the transactions and other events of a business enterprise. To understand the accounting process, one must be aware of the basic terminology employed in the process. The basic terminology includes: events, transactions, real accounts, nominal accounts, ledger, journal, posting, trial balance, adjusting entries, financial statements, and closing entries. These terms refer to the various activities that make up the accounting cycle . As we review the steps in the accounting cycle, the individual terms will be defined. 3. (S.O. 2) Double-entry accounting refers to the process used in recording transactions. The terms debit and credit are used in the accounting process to indicate the effect a transaction has on account balances. Also, the debit side of any account is the left side; the right side is the credit side. Assets and expenses are increased by debits and decreased by credits. Liabilities, owners’ equity, and revenues are decreased by debits and increased by credits. *Note: All asterisked (*) items relate to material contained in the Appendices to the chapter. The Accounting Cycle 4. In a double-entry system, for every debit there must be a credit and vice-versa. This leads us, then, to the basic equation in accounting: Assets = Liabilities + Stockholders’ Equity. 5. (S.O. 3) The first step in the accounting cycle is analysis of transactions and selected other events. The purpose of this analysis is to determine which events represent transactions that should be recorded. 6. Events can be classified as external or internal . External events are those between the enterprise and its environment, whereas internal events relate to transactions totally within the enterprise. Journalizing
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This note was uploaded on 09/30/2008 for the course ACCY 206 taught by Professor Madlinger during the Spring '08 term at Northern Illinois University.

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Chapter 03 Review - CHAPTER3REVIEW 1 .Thebasic...

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