Chapter 2 Flashcards
The Accounting Process
What is an account?
A cumulation of detailed information regarding increases and decreases in a specific asset, liability or equity item
What are some examples of asset accounts?
Cash, Accounts Receivable, Unused Supplies, Inventory, Prepaid Insurance or Rent, Buildings, Land
What are some examples of liability accounts?
Accounts payable, Bank loans, Unearned revenue
What are the 5 types of shareholder’s equity accounts?
Share capital, Retained earnings, Dividends, Revenue, Expenses
What is a T account? What is on each side of this account?
A simplified account used to show increases and decreases in an account.
The left side indicates debits and the right side indicated credits
For dividends, expenses and assets (DEA) debits are _______ and credits are _______
Debits = increase
Credits = decrease
For liabilities, equity and revenue (LER) debits are ______ and credits are _______
Debits = decrease
Credits = increase
How do you determine an account balance?
The adding and subtracting of increases and decreases in an account. The balance is recorded on whichever side of the T account is greater
What is a normal balance? Give an example
The side of the T account where increases occur.
Example: Accounts Payable (a liability) will have an increase on the right side
What is a chart of accounts?
A created list of accounts. Each account is assigned (usually) both a name and a number
In the double-entry accounting, the sum of ____ balance accounts in the ledger must ____ the sum of the credit balance accounts
The sum of the DEBIT balance accounts must EQUAL the sum of the credit balance accounts
Assets (_____) = Liabilities (______) + Equity (Credits)
Assets (DEBITS) = Liabilities (CREDITS) + Equity (Credits)
What is a trial balance? When is it used?
A trial balance lists all the account balances at a point in time. It is used to verify that the accounting equation (debit & credits) is balanced.
Financial transactions are recorded in a _______ ______.
General Journal
What is a general journal? What is it also known as?
A document used to chronologically records a business’ debit & credit transactions.
AKA The book of original entry
________ is the process of recording a financial transaction in the journal
Journalizing
What is a journal entry?
The resulting debit & credit entry completed by journalizing
________ entry is when a journal entry has more than one debit or credit for that transaction.
Compound Entry
In journaling, accounts to be ____ are recorded first, followed by accounts to be _____
Accounts to be DEBITED are recorded first, followed by the accounts to be CREDITED
What is a ledger account? Where are they kept?
A formal variation of the T account.
They are kept in the general ledger
The Accounting Cycle is:
General Journal —> General ______ —> _____ Balance —> Statements
General Journal - General Ledger - Trial Balance - Statements
