test 2 review - Exam2 Frameworks Spring2011

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Frameworks Exam 2 Spring 2011 Chapter 3- The Accounting Information System Accounting Information System o Collects and processes transaction data  o Communicates financial information to decision makers Assets = Liabilities  + Stockholders’ Equity  Asset Liabilities Common Stock + Retained  Earnings - Dividends + Revenues - Expenses DR. + CR. - DR. - CR. + DR. - CR. + DR. - CR. + DR. + CR. - DR. - CR. + DR. + CR. - The Accounting Cycle o Journalizing General Ledger Contains all asset, liability, and stockholders’ equity account General Journal Chronologically lists transactions and other events, expressed in terms of  debits and credits to accounts 1
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[Type text] [Type text] [Type text] o Trial Balance List the account and their balances at a given time Debits=Credits o Adjusting Entries Deferrals Prepaid Expenses o Expenses paid in cash and recorded as an asset  before  they are used or  consumed  o Credit the asset account and debit the expense account o Examples Supplies (expire with usage) Rent and insurance (expire with time) Depreciation Book value o Cost - Accumulated Depreciation  Unearned Revenues o Revenues received in cash and recorded as liabilities  before  they are earned o Debit the liability account and credit the revenue account o Examples Rent, magazine subscriptions, and customer deposit for future service Accruals Accrued Revenues o Revenues earned but  not yet received  in cash or recorded o Debit the asset account and credit the revenue account o Examples Accounts receivable  Accrued Expenses o Expenses incurred but  not yet paid  in cash or recorded o Debit the expense account and credit the liability account  o Examples Interest, rent, taxes, and salaries Contra asset account Offsets an asset account on the balance sheet Bad Debt Proper recognition of revenues and expenses dictates recording bad debts as an  expense of the period in which a company earned revenue instead of the period in  which the company write off the account or notes  o Trial Balance to Financial Statements [Type text] [Type text] [Type text]
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Frameworks Exam 2 Spring 2011 Income Statement Revenue down  Retained Earnings Dividends and Retained earnings Balance Sheet Top to Revenue o Closing Entries Closing process Reduces the balance of nominal (temporary) accounts to zero in order to  prepare the accounts for the next period’s transactions Examples o Revenue Account DR. Revenue CR. Income Summary  o Expense Account DR. Income Summary CR. All Expenses  o Close net income to retained earnings DR. Income Summary CR. Retained Earnings o Close dividends to Retained Earnings DR. Retained Earnings  CR. Dividends  3
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test 2 review - Exam2 Frameworks Spring2011

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