Chapter 3

Question 1

What is the Accounting Cycle?

Answer 1

Nine step process used to record transactions and prepare financial statements.

Question 2

What is the first step of the Accounting Cycle and how does it work?

Answer 2

Analyze Business Transactions; A business transaction occurs when the assets, liabilities, or shareholders’ equity items change as the result of an economic event

Question 3

What is the second step of the Accounting Cycle and how does it work?

Answer 3

Journalize Transactions; A journal entry is used to record the transaction so as to ensure proper accounts are effected in the proper way.
Use debits (left or top) and credits (right or bottom)

Question 4

What is the third step of the Accounting Cycle and how does it work?

Answer 4

Post to General Ledger; enter the journalized transactions into the appropriate accounts in the companies accounting system

Question 5

What are the properties of the general ledger?

Answer 5

• contains all the asset, liability, shareholders’ equity, revenue and expense accounts
• Each account has a number so it can be identified easily
• All of the accounts when organized is called the chart of accounts

Question 6

What is posting?

Answer 6

The procedure of transferring journal entries to the general ledger.

Question 7

What accounts are journal entries posted to and how are they structured?

Answer 7

T accounts; they have the account title on top, the account debit on the left and account credit on the right.

Question 8

What is the general ledger?

Answer 8

The company’s accounting system.

Question 9

What are the limitations of a trial balance?

Answer 9

• does not determine if the transactions have been journalized correctly
• does not identify if a transaction has been posted twice
• does not determine if the transaction has the incorrect accounts

Question 10

What is the fourth step of the Accounting Cycle and how does it work?

Answer 10

Trial Balance; It’s prepared by listing all T - account ending balances as of a specific date and ensuring that the debits are equal to the credits

Question 11

What is a trial balance?

Answer 11

• A list of general ledger accounts and their balances at the end of a specific point in time that is prepared at the end of an accounting period (usually end of the month)
• Cannot have balance in both debit and credit side of account