Accounting Principles and Practices

The accounting cycle is the collective process of identifying, analyzing, and recording the accounting events of a company throughout a fiscal period.

Closing entries are journal entries made at the end of an accounting period to transfer balances from temporary accounts (like revenue and expenses) to permanent accounts (like retained earnings).

A schedule of accounts receivable is a report that lists all individual customer accounts and their respective balances, totaling the amount owed to the company.

A fiscal period is the specific length of time (e.g., a month, quarter, or year) for which a business summarizes and reports its financial information.

A credit memorandum is a document issued by a seller to a buyer to notify them that a credit has been applied to their account, typically due to returns or allowances. Other options like sales or cash discounts are related to payment terms rather than the return of goods.

Posting is the accounting process of transferring information from the journal to the ledger. This ensures that the individual account balances are updated based on the transactions recorded in the journal.

A departmental accounting system is a method of organizing accounting records by department, not a definition of a business type. A business that purchases and sells goods is defined as a merchandising business.

File maintenance involves the ongoing process of organizing, updating, and managing the accounts within a ledger, including assigning numbers and keeping records current. It ensures the integrity of the accounting system.

An account is a record that summarizes all transactions related to a specific item, such as cash, accounts receivable, or a specific expense. The ledger is the collection of all these accounts.

Source documents are the original records that provide evidence of a business transaction, such as invoices, receipts, or checks. Accounting records are the result of processing these documents.

The Income Statement reports revenues and expenses over a period of time. Earned Revenue is a revenue account, whereas Owner's Capital and Withdrawals appear on the Statement of Owner's Equity, and Unearned Revenue is a liability on the Balance Sheet.

Rent Expense is a temporary account that appears on the Income Statement, not the Balance Sheet. Land, Notes Payable, and Unearned Revenue are all permanent accounts that appear on the Balance Sheet.

A General Journal is a book of original entry where transactions are recorded, but it is not a source document itself. Source documents are the evidence used to create the journal entries.

The Statement of Owner's Equity uses the Net Income (or Net Loss) from the Income Statement to calculate the ending capital balance. The Balance Sheet then uses the ending capital balance.

Unearned Revenue represents cash received for services or goods that have not yet been provided. It is a liability until the revenue is earned.