3. Recording accounting transactions

Question 1

accounting information system

Answer 1

The system that:

• – identifies*
• – records*
• – summarises*
• – communicates*

the various transactions of a business.

Question 2

accounting transaction

Answer 2

Any economic event that affects a business’ assets, liabilities and/or equity at the time of the event.

Question 3

account

Answer 3

An accounting record that accumulates the activity of a specific item and yields the item’s balance.

Question 4

chart of accounts

Answer 4

The list of accounts that a business uses to capture its business activities.

Question 5

dual nature of accounting

Answer 5

Every accounting transaction must affect at least two accounts.

Question 6

dual-entry accounting system

Answer 6

A system of accounting in which every accounting transaction affects at least two accounts.

Question 7

debit

Answer 7

A use of funds, recorded on the left-hand side of a T-account.

Question 8

credit

Answer 8

A source of funds, recorded on the right-hand side of a T-account.

Question 9

In a dual-entry system, changes in account balances are recorded according to the following basic rules:

Answer 9

● to increase an account balance: record the transaction on the same side as the normal balance

● to decrease an account balance: record the transaction on the opposite side of the normal balance

Question 10

Asset accounts have normal _______ balances.

Therefore, increases to assets are recorded on the _______ side while decreases are recorded on the _______ side.

Answer 10

Asset accounts have normal debit balances.

Therefore, increases to assets are recorded on the debit side while decreases are recorded on the credit side.

Question 11

Liability and equity accounts have normal _______ balances.

Therefore, increases are recorded on the _______ side, while decreases are recorded on the _______ side.

Answer 11

Liability and equity accounts have normal credit balances.

Therefore, increases are recorded on the credit side, while decreases are recorded on the debit side.

Question 12

When a business earns revenue, it is increasing its ______.

Increasing an ______ account requires a ______ entry.

Answer 12

When a business earns revenue, it is increasing its equity.

Increasing an equity account requires a credit entry.

Question 13

When a business incurs expenses or pays dividends, it is decreasing its ______.

Decreasing ______ requires a ______ entry.

Answer 13

When a business incurs expenses or pays dividends, it is decreasing its equity.

Decreasing equity requires a debit entry.

Question 14

For ______, ______ and ______ accounts, increases are recorded in the debit column and decreases are recorded in the credit column.

Answer 14

For asset, expense and dividend accounts, increases are recorded in the debit column and decreases are recorded in the credit column.

Question 15

For _______, _______ and _______ accounts, increases are recorded in the credit column and decreases are recorded in the debit column.

Answer 15

For liability, equity and revenue accounts, increases are recorded in the credit column and decreases are recorded in the debit column.

Question 16

Accounting transactions are first recorded in a _______.

Once recorded, the information is transferred or posted to a _______.

Information in the _______ is then summarised in a worksheet known as a _______ _______.

Financial statements are then prepared from the information in the _______ _______.

Answer 16

Accounting transactions are first recorded in a journal.

Once recorded, the information is transferred or posted to a ledger.

Information in the ledger is then summarised in a worksheet known as a trial balance.

Financial statements are then prepared from the information in the trial balance.

Question 17

journal

Answer 17

A chronological record of transactions.

Question 18

ledger

Answer 18

A collection of accounts and their balances.

Question 19

trial balance

Answer 19

A listing of accounts and their balances at a specific point in time.