Financial Accounting Chapter 2 Exam 1 – Flashcards
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account
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accounting systems are designed to show the increases and decreases in each accounting equation element as a separate record
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the three parts of an account
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a title, a space for recording increases in the amount of element, a space for recording decreases in the amount of the element
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t account
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left side debit side right side credit side
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debit
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(left side) increases in assets
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credit
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decreases in assets
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balance of the account
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excess of the debits of an asset account over its credits
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ledger
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a group of accounts for a business entity
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chart of accounts
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list of the accounts in the ledger
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assets
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resources owned by the business entity
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liabilities
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debts owned to outsiders (creditors)
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stockholders' equity
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stockholders' right to the assets of the business. represented by the balance of common stock and retained earnings accounts
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dividends
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represents distributions of earnings to stockholders'
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revenues
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are increases in assets and stockholders' equity as a result of selling services or products to customers
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expenses
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result from using up assets or consuming services in the process of generating revenues
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double entry accounting system
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based on the accounting equation and requires every business transaction to be recorded in at least two accounts and the total debits recorded for each transaction to be equal to the total credits recorded
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rules of debit and credit for balance sheet
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assets- increase=debit decrease= credit liabilities- increase= credit decrease= debit stockholders' equity- increase= credit decrease= debit
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rules of debit and credit for income statement
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revenue accounts- increase= credit decrease= debit expense accounts- increase= debit decrease= credit
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rules of debit and credit for dividends
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dividend accounts- increase= debit decrease= credit
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normal balance of an account
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either a debit or credit depending on whether increases in the account are recorded as debits or credits
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journal
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transactions are initially entered in a record in this
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journalizing
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process of recording a transaction in the journal
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journal entry
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entry in the journal
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posting
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process of transferring the debits and credits from the journal entries to the accounts
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unearned revenue
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the liability created by receiving the cash in advance of providing the service
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accounts receivable
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when a business agrees that a customer may pay for services provided at a later date. a claim against the customer
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trial balance
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one way to detect errors. verifies the equality of debits ; credits
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unadjusted trial balance
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unadjusted
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transposition
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occurs when the order of the digits is copied incorrectly
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slide
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the entire number is copied incorrectly one or more spaces to the right or the left
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correcting journal entry
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correcting the mistakes that are already posted to the ledger
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horizontal analysis
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the amount of each item on a current financial statement is compared with the same item on an earlier statement
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trial balance
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one way to detect errors. verifies the equality of debits ; credits
