Chapter 2 Flashcards
What is an account in accounting?
An account is a record showing the increases and decreases in each accounting equation element.
What are the three parts of an account?
A title (name of the element being recorded).
A space for recording increases.
A space for recording decreases.
What are the debit and credit sides of an account?
Left side (Debit): Increases in assets.
Right side (Credit): Increases in liabilities and equity.
What is a ledger?
A group of accounts for a business entity.
What is a chart of accounts?
A list of accounts in the ledger.
What is the double-entry accounting system?
A system where:
Each transaction is recorded in at least two accounts.
The total debits must equal the total credits.
What is journalizing?
The process of recording a transaction in the journal.
What is posting?
The process of transferring debits and credits from the journal to the accounts.
What is unearned revenue?
A liability created when cash is received in advance of providing a service.
What is accounts receivable?
A claim against customers for services performed or goods sold on credit.
What is a trial balance?
A report verifying that debits equal credits in the accounting system.
What is an unadjusted trial balance?
A trial balance prepared before adjustments are made.
What are the other types of trial balances?
Adjusted trial balance (after adjustments).
Post-closing trial balance (after closing entries).
What is a transposition error?
An error where the order of digits is switched (e.g., 42 instead of 24).
What is a slide error?
An error where the decimal place shifts (e.g., 100 instead of 10).
What is a correcting journal entry?
An entry made to fix an error that has already been recorded in the ledger.
What are assets?
Assets are resources owned or controlled by a business that provide future economic benefits.
Which of the following are assets?
Cash
Accounts Payable
Land
Retained Earnings
Cash, Land (Accounts Payable is a liability, Retained Earnings is equity).
Identify the asset: A business provides services on credit, and the customer has not paid yet.
Accounts Receivable (It is a claim against the customer and considered an asset).
What type of asset is Prepaid Insurance?
A current asset (It represents a future benefit paid in advance).
What are liabilities?
Liabilities are obligations that a business owes to others, such as debts or services to be provided in the future.
Which of the following are liabilities?
Unearned Revenue
Dividends
Accounts Payable
Cash
Unearned Revenue, Accounts Payable (Dividends fall under equity, Cash is an asset).
Identify the liability: A customer pays in advance for a service that will be provided later.
Unearned Revenue (The business has an obligation to deliver the service).
Is a bank loan an asset or a liability?
Liability (It is money that the business must repay).
What is equity?
Equity is the owner’s claim on the assets of a business after liabilities are deducted.
Which of the following fall under equity?
Common Stock
Rent Expense
Retained Earnings
Equipment
Common Stock, Retained Earnings (Rent Expense is an expense, Equipment is an asset).
What does Retained Earnings represent?
Retained Earnings are the accumulated profits of a business that have not been distributed as dividends.
How does issuing dividends affect equity?
Dividends reduce equity because they distribute profits to shareholders.
