3 – Analyzing Business Transactions Using T Accounts – Flashcards
Unlock all answers in this set
Unlock answersquestion
Accounts
answer
- written records of the assets, liabilities and owner's equity of a business
question
classification
answer
- a means of identifying each account as an asset, liability or owner's equity
question
asset accounts
answer
- accounts that show the property a business owns
question
liability accounts
answer
- accounts that show the debts of the business
question
owner's equity accounts
answer
- accounts that show the owner's financial interest in the business
question
T account
answer
- a type of account, consisting of a vertical line and a horizontal line that resemble a T, used to analyze the effects of a business transaction
question
For T Accounts, increases for assets are shown on the ____ side, decreases are shown on the ____ side
answer
- Left, right
question
For T Accounts, increases for liabilities are shown on the ____ side, decreases are shown on the ____ side
answer
- Right, left
question
For T Accounts, increases for owner's equity are shown on the ____ side, decreases are shown on the ____ side
answer
- Right, left
question
steps for analyzing the effects of a business transaction
answer
1. Analyze the financial event - Identify the accounts affected - Classify the accounts affected - Determine the amount of increase or decrease for each account 2. Apply the left-right rules for each account affected 3. Make the entry in T-account form
question
Account balance
answer
- the difference between the amounts on the two sides of a T account
question
normal balance
answer
- the increase side of an account
question
For revenue T accounts, increases are shown on the ____ side, decreases are shown on the ____ side
answer
- Right, Left
question
For T Accounts, increases for expenses are shown on the ____ side, decreases are shown on the ____ side
answer
- left, right
question
Debit
answer
- an entry on the left side of an account
question
Credit
answer
- an entry on the right side of an account
question
Double-entry system
answer
- an accounting system that involves recording the effects of each transaction as debits and credits - each transaction has at least two entries, a debit and a credit
question
An increase in an asset account is recorded as a
answer
- Debit
question
An increase in a liability account is recorded as a
answer
- Credit
question
An increase in an owner's capital account is recorded as a
answer
- Credit
question
An increase in an owner's drawing account is recorded as a
answer
- Debit
question
An increase in a revenue account is recorded as a
answer
- Credit
question
An increase in an expense account is recorded as a
answer
- Debit
question
trial balance
answer
- a statement that tests the accuracy of total debits and credits after transactions have been recorded
question
steps for preparing a trial balance
answer
1. Enter the trial balance heading showing the company name, report title, and closing date for the accounting period 2. List the account names in the same order as they appear on the financial statements (balance sheet accounts first, followed by income statement accounts): - assets - liabilities - Owner's equity - revenue - Expenses 3. enter the ending balance of each account in the appropriate Debit or Credit column 4. total the debit column 5. Total the credit column 6. compare the total debits with total credits
question
If the trial balance does not balance, try the following procedures:
answer
1. check the arithmetic. If the columns were originally added from top to bottom, verify the total by adding from bottom to top 2. check that the correct account balances were transferred to the correct trial balance columns 3. Check the arithmetic used to compute the account balance 4. Check that each transaction was recorded correctly in the accounts by tracing the amounts to the analysis of the transaction
question
transposition
answer
- An accounting error involving misplaced digits in a number
question
slide
answer
- an accounting error involving a misplaced decimal point
question
chart of accounts
answer
- a chart of all the accounts used by a business to record its financial transactions
question
permanent accounts (real accounts)
answer
- an account that is kept open (continues) from one accounting period to the next
question
temporary accounts (nominal accounts)
answer
- an account whose balance is transferred to another account at the end of an accounting period - In the next period, these accounts start with zero balances
question
the amounts on the balance sheet are ____ at the end of the accounting period
answer
- carried forward to the next accounting period
question
the amounts on the income statement are ____ at the end of the accounting period
answer
- transferred to the capital account
