ch 2 Flashcards
Account
Record of all increases and decreases in an asset, liability or equity
Notes Receivable
Written promise tha ta customer will pay a fixed amount of principal plus interest by a certain date in the future.
Prepaid Expense
Payment of an expense in advance.
example: Prepaid Rent
Notes Payable
Written promise made by the business to pay a debt, usually involving interest in the future.
Accrued Liability
An amount owed, but not paid.
examples: Taxes Payable, Rent Payable, Salaries Payable
Unearned Revenue
When a business collects cash from customers in advance of providing services or delivering goods. A liability account.
Asset Accounts
Cash, Accounts Receivable, Notes Receivable, Prepaid Expense, Land, Building, Equipment
Liability Accounts
Accounts Paable, Notes Payable, Accrued Liability, Unearned Revenue
Equity Accounts
Common Stock, Dividends, Revenues, Expenses
Chart of Accounts
All the company’s accounts with their account number
Ledger
Record holding all the accounts of a business, the changes in those accounts, and their balances.
Double Entry System
Every transaction affects at least two accounts.
T-Account
Summary device with debits posted to the left and credits posted to the right.
Debit
Increases Asset, Decreases Liaiblity/Equity; Left side of t-account
Credit
Increases Liability/Equity, decreases assets
Dividends/Expenses
Equity accounts that decrease equity.
Debit Equity.
Exception to the Debit/Credit Rule.
Normal Balance
Balance that appears on the increase side of an account.
Example: Assets’ normal balance is a debit.
Normal Balance Examples
Account Type Increases Decreases Normal Balance
Assets Debit Credit Debit
Expenses Debit Credit Debit
Dividends Debit Credit Debit
Liabilities Credit Debit Credit
Revenues Credit Debit Credit
Common Stock Credit Debit Credit
Source Document
Evidence and data for accounting transactions.
Flow of Accounting Data
1.) Transaction occurs
2.) Source documents are prepared.
3.) Transactions are analyzed.
4.) Transactions are journalized and posted.`
Journal
Record of transactions in date order.
ex:
Date Account Debit Credit
Nov 1 Cash 30,000
Common stock 30,000
Posting
Transferring data from the journal to the ledger.
Compound Journal Entry
Having multiple debits or multiple credits
ex:
Rent Expense 2,000
Salaries Expense 1,200
Cash 3,200
Four Column Account
Alternate to T-Account; used more often in practice
Cash Act: 000-2295.1000
BALANCE
Date Item Post Ref Debit Credit Debit Credit
11-1 J1 300 300
11-2 J2 200 100
Trial Balance
All ledger accounts with their balances at a point in time. Assets are listed first, then liabilities, then equity.
Used to prepare financial statements.
Debt Ratio
Shows the portion of assets financed w/ debit. Evaluates a business’ ability to pay its debts.
Total Liabilities/Total Assets
