CH2 Flashcards
What is an Account?
An account is an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item.
What are the parts that an Account consists of?
- A title
- A left or debit side
- Aright or credit side
What is Debit and Credit?
The term debit indicates the left side of an account, and credit indicates the right side. We use the terms debit and credit repeatedly in the recording process to describe where entries are made in accounts. For example, the act of entering an amount on the left side of an account is called debiting the account. Making an entry on the right side is crediting the account.
What are the steps of Recording?
- Analyze each transaction in terms of its effect on the accounts.
- Enter the transaction information in a journal.
- Transfer the journal information to the appropriate accounts in the ledger.
What is Journal?
Journal is the place where the complete effects of transaction relevant to a business are disclosed in a chronological order.
What is Journalizing?
Entering transaction data in the journal is called journalizing.
A complete journal entry consists of what?
- The date of the transaction
- The accounts and amounts to be debited and credited
- A brief explanation of the transaction
What is Simple Entry and Compound Entry?
Some entries involve only two accounts, one debit and one credit. This type of entry is called a simple entry. Some transactions, however, require more than two accounts; these entries are called compound entries.
What is Ledger?
The entire group of accounts maintained by a company is called the ledger. The ledger provides the balance in each of the accounts as well as keep track of changes in these balances.
Companies arrange the ledger in the sequence in which they present the accounts in the financial statements, beginning with the balance sheet accounts. First in order are the asset accounts, followed by liability accounts, owners' capital, owners' drawings, revenues, and expenses.
What is Posting?
The procedure of transferring journal entries to the ledger accounts is called posting.
What is the Chart of Accounts?
The chart of accounts lists the accounts and the account numbers that identify their location in the ledger. The numbering system that identifies the accounts usually starts with the balance sheet accounts and follows with the income statement accounts.
You will notice that there are gaps in the numbering system of the chart of accounts. Companies leave gaps to permit the insertion of new accounts as needed during the life of the business.
What is Trial Balance?
A trial balance is a list of accounts and their balances at a given time. Companies usually prepare a trial balance at the end of an accounting period. They list accounts in the order in which they appear in the ledger. Debit balances appear in the left column and credit balances in the right column. The totals of the two columns must equal.
The trial balance proves the mathematical equality of debits and credits after posting. A trial balance may also uncover errors in journalizing and posting. In addition, a trial balance is useful in the preparation of financial statements.
Dollar Signs and Underlining
Note that dollar signs do not appear in journals or ledgers. Dollar signs are typically used only in the trial balance and the financial statements. Generally, a dollar sign is shown only for the first item in the column and for the total of that column. A single line (a totaling rule) is placed under the column of figures to be added or subtracted. Total amounts are double-underlined to indicate they are final sums.
