Bookkeeping Cycle Flashcards

What is the effect on the accounting equation when a business pays a liability in cash?

Answer: Assets decrease and liabilities decrease

Paying a liability reduces Cash (asset) and reduces the corresponding liability, keeping the equation balanced.

Which of the following is an example of an accrued revenue adjusting entry?

Answer: Debit Accounts Receivable; Credit Service Revenue

Accrued revenue records earnings that have been earned but not yet billed or collected by debiting a receivable and crediting revenue.

The Income Summary account is used during which phase of the bookkeeping cycle?

Answer: Closing entries

Income Summary is a temporary account used during closing entries to transfer net income or loss to Retained Earnings.

A worksheet is used in the bookkeeping cycle primarily to:

Answer: Organize data before preparing formal financial statements

A worksheet is an informal working document that helps bookkeepers organize trial balance, adjustments, and financial statement columns before formal preparation.

Under accrual accounting, when is revenue recognized?

Answer: When earned, regardless of when cash is received

The revenue recognition principle requires revenue to be recorded when it is earned, not necessarily when cash changes hands.

Which entry closes the Dividends account at the end of the period?

Answer: Debit Retained Earnings; Credit Dividends

Dividends reduce retained earnings, so closing requires debiting Retained Earnings and crediting the Dividends account to bring it to zero.

A business has $800 in Unearned Revenue. By year-end, $500 of services have been performed. The adjusting entry is:

Answer: Debit Unearned Revenue $500; Credit Service Revenue $500

The portion of unearned revenue that has been earned ($500) is recognized by debiting the liability and crediting revenue.