Chapter 2

Question 1

Account

Answer 1

An accounting form used to record the increases and decreases in each financial statement item.

Question 2

Account receivable

Answer 2

An asset, which is a claim against the customer created by selling merchandise or services on credit.

Question 3

Assets

Answer 3

The resources owned by a business.

Question 4

Balance of the account

Answer 4

The amount of the difference between the debits and the credits that have been entered into an account.

Question 5

Chart of accounts

Answer 5

A list of the accounts in the ledger.

Question 6

Common stock

Answer 6

Certificates issued by a corporation to investors as proof of their ownership rights; an account representing the ownership rights of investors in a corporation; a class of stock issued by a corporation that bears no preference rights.

Question 7

Correcting journal entry

Answer 7

An entry that is prepared to correct an error to an entry that has already been journalized and posted.

Question 8

Credit

Answer 8

Amount entered on the right side of an account.

Question 9

Debit

Answer 9

Amount entered on the left side of an account.

Question 10

Dividends

Answer 10

Distributions of earnings to stockholders; an account representing the distribution of a corporation’s earnings to stockholders.

Question 11

Double-entry accounting system

Answer 11

A system of accounting for recording transactions, based on recording increases and decreases in accounts so that debits equal credits.

Question 12

Expenses

Answer 12

Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues.

Question 13

Four-column account

Answer 13

A form of account that has Debit and Credit columns for recording transactions as well as Balance (Debit and Credit) columns for indicating the account balance after each transaction.

Question 14

Horizontal analysis

Answer 14

Financial analysis that compares an item in a current statement with the same item in prior statements in terms of the amount and percentage of change.

Question 15

Journal

Answer 15

The initial record in which the effects of a transaction are recorded.

Question 16

Journal entry

Answer 16

The record of a transaction entered in a journal, made up of at least one debit and one credit.

Question 17

Journalizing

Answer 17

The process of recording a transaction in a journal.

Question 18

Ledger

Answer 18

A group of accounts for a business.

Question 19

Liabilities

Answer 19

The rights of creditors that represent debts of the business.

Question 20

Normal balance of an account

Answer 20

The side of an account (debit or credit) in which the balance normally appears based on the type of account and whether it is increased by debits or credits.

Question 21

Posting

Answer 21

The process of transferring the debits and credits from the journal entries to the accounts.

Question 22

Prepaid Expenses

Answer 22

Assets created by making advanced payments for expense items, such as insurance premiums or supplies, that will be used in the business in the future.

Question 23

Retained earnings

Answer 23

The stockholders’ equity created from business operations through revenue and expense transactions; an account representing the net income retained in a corporation.

Question 24

Revenues

Answer 24

Increases in owner’s equity as a result of providing services or selling goods to customers.

Question 25

Rules of debit and credit

Answer 25

In the double-entry accounting system, specific rules for recording debits and credits based on the type of account.

Question 26

Slide

Answer 26

An error in which the entire number is moved one or more spaces to the right or the left, such as writing $542.00 as $54.20 or $5,420.00.

Question 27

Stockholders’ equity

Answer 27

The ownership rights of stockholders in a corporation; the stockholders’ rights to the assets in a corporation.

Question 28

T account

Answer 28

The simplest form of an account, which consists of an account title, a debit side, and a credit side.

Question 29

Transposition

Answer 29

An error in which the order of the digits is changed, such as writing $542 as $452 or $524.

Question 30

Trial balance

Answer 30

A summary listing of the titles and balances of accounts in the ledger, which is used to verify that debits equal credits.

Question 31

Two-column journal

Answer 31

A form of journal in which there are only two amount columns, one for debits and one for credits.

Question 32

Unadjusted trial balance

Answer 32

A trial balance prepared at the end of an accounting period before adjusting entries are made.

Question 33

Unearned revenue

Answer 33

The liability created by receiving revenue in advance.