Bookkeeping Basic Flashcards

Which entity's transactions are recorded in bookkeeping?

Answer: Business

According to the accounting entity concept, a business is treated as a separate and distinct entity from its owners for accounting purposes. Therefore, bookkeeping records only the financial transactions that pertain directly to the business itself. This ensures that the financial performance and position of the business are clearly and accurately reported, separate from the personal finances of its owners.

Is this statement true or false? For the following transaction, this is an accurate journal entry: A customer makes a $250.00 payment on their account. Credit – Accounts Payable – $250.00 Debit – Income – $250.00

Answer: False

The provided journal entry is incorrect. When a customer makes a payment on their account, it means they are paying off an Accounts Receivable (money owed to the business), not Accounts Payable (money the business owes). The correct entry would be to debit Cash (increasing cash) and credit Accounts Receivable (decreasing the amount owed by the customer), as the customer's debt is settled.

What phrase is used to describe the usage of debits and credits to record a transaction in accounting records?

Answer: An entry

In accounting, the act of recording a business transaction using debits and credits in the journal is referred to as making an 'entry' or a 'journal entry.' This term encompasses the entire process of documenting the financial event in the accounting records. Each entry ensures that the fundamental accounting equation remains balanced.

Which of the following accounts would be considered a debit?

Answer: Net Loss

Accounts that are considered 'debit' accounts are those that typically have a debit balance or increase with a debit entry. Assets (like Beginning Inventory) and Expenses fall into this category. A Net Loss, while not a standalone account, ultimately reduces owner's equity, which is achieved through a debit to the Retained Earnings account during the closing process, thus having a debit effect on equity.

What is the term for the amount of time it takes to produce a set of financial statements?

Answer: An Accounting Period

An accounting period is a specific, defined length of time for which a company prepares its financial statements. This period can be a month, quarter, or a full year, allowing businesses to regularly measure their financial performance and position. Dividing operations into these periods ensures timely reporting and analysis of financial data.

Individual what are accounting records made up of?

Answer: Accounts

Accounting records are fundamentally made up of individual accounts, which are detailed records for each asset, liability, equity, revenue, and expense item. Each account tracks the increases and decreases resulting from financial transactions. These individual accounts are the building blocks that collectively form the general ledger and ultimately feed into the financial statements.

To reverse a payment, you'd do the:

Answer: Create a payment and make Amount: - NEGATIVE

In many modern accounting software systems, reversing a payment is often accomplished by creating a new transaction with a negative amount. This method effectively offsets the original payment without deleting the historical record. It reduces the cash balance and reinstates the amount owed by the customer or to the vendor, maintaining an audit trail.

Which of the following statements is not a financial statement?

Answer: Cash Book

The Cash Book is a subsidiary ledger or a book of prime entry that records all cash receipts and payments. While it is a vital accounting record for tracking cash transactions, it is not considered one of the primary financial statements. The main financial statements are typically the Income Statement, Balance Sheet, and Statement of Cash Flows, which summarize financial performance and position.

Which of the following errors have an impact on the trial balance?

Answer: One sided posting

A one-sided posting error occurs when a debit is recorded without a corresponding credit, or vice versa, or when only one side of a transaction is posted. This type of error directly causes the total debits and total credits in the trial balance to be unequal. Consequently, the trial balance will not balance, making this error detectable during its preparation.