Ch. 2 Flashcards
Name 7 assets accounts
- Cash
- Accounts receivable
- Notes receivable
- Prepaid expenses
- Land
- Building
- Equipment, furniture, and fixtures
What are 4 examples of liability accounts
- Accounts payable
- Notes payable.
- accrued liability
- Unearned revenue
A list of all of a company’s accounts with their account numbers
Chart of accounts
What are 4 equity accounts
- Common Stock
- Dividends
- Revenues
- Expenses
The record holding all the accounts of a business, the changes in those accounts, and their balances.
Ledger
A system of accounting in which every transaction affects at least two accounts
Double-entry accounting
A summary device that is shaped like a capital T with debits posted on the left side and credits on the right side
T-account
In financial accounting, debit and credit mean what
Debit = left
Credit = right
How do you know if debits and credits increase or decrease
Assets are on the right side of the equation, so the left side, debits, increases. Common Stock, Expenses and liabilities are on the left side, so the right side, credits, increases. opposite for dividends and expenses, they match assets.
What side is the normal balance on
Whatever side increases
What phrase helps remember what accounts have normal balance on right and left
A Elephants Do Love Rowdy Children
Provides the evidence and data for accounting transactions
Source Documents
What are some examples of source documents
Checks, deposit slips, and invoices
What is the flow of accounting data
- Transaction occurs
- Source Documents are prepared
- Transactions are analyzed
- Transactions are journalized and posted.
A record of transaction in date order
Journal
Transferring data from the journal to the ledger
Posting
Steps for Journalizing and posting transactions
- Identify the accounts and account types
- Decide whether each account incresases or decreases, then apply the rules for debits and credits
- Record the transaction in the journal
- Post the journal entry to the ledger
- Determine whether the accounting equation is in balance
A list of all leger accounts with their balances at a point in time
Trial Balance
Three things to check if your trial balance is wrong
- Search for missing accounts
- Divide by 2 (possible entry in wrong side)
- Divide by 9 (possible transition or swapping of first two digits in entry).
The process by which companies produce their financial statements for a specific period of time
Accounting cycle
What are the four steps to the accounting cycle
- Start with the beginning balance
- Analyze and journalize transactions in the journal
- Post journal entries to the accounts in the ledger
- Prepare unadjusted trial balance
What’s the formula for return on assets
Net income/Average total assets
What is debt ratio, and how do you calculate it
Proportion of assets financed with debt
Total liabilities/total assets
