Chapter 2

Question 1

Account

Answer 1

A record within an accounting system in which the increases and decreases in a specific asset, liability, or equity are recorded and stored.

Question 2

Account balance

Answer 2

The total for a specific account. It is calculated by determining the difference between the increases (including the beginning balance) and decreases recorded in an account over a period.

Question 3

Accounting cycle

Answer 3

The steps repeated each reporting period for the purpose of preparing financial statements for users.

Question 4

Accounts payable

Answer 4

Obligations that arise when the company promises to pay a supplier/service provider in the future for purchases of merchandise, supplies, or equipment.

Question 5

Accounts receivable

Answer 5

An asset representing the amount owed to the company from their customers. Accounts receivable are created when services are performed for or goods are sold to customers in return for promises to pay in the future. These transactions are said to be on credit or on account. Accounts receivable are increased by services performed or goods sold on credit and decreased by customer payments.

Question 6

Chart of accounts

Answer 6

A list of all accounts used by a company; includes the identification number assigned to each account.

Question 7

Compound journal entry

Answer 7

A journal entry that affects at least three accounts.

Question 8

Credit

Answer 8

An entry that decreases asset, expense, and owner’s withdrawals accounts or increases liability, owner’s capital, and revenue accounts; recorded on the right side of a T-account.

Question 9

Debit

Answer 9

An entry that increases asset, expense, and owner’s withdrawals accounts or decreases liability, owner’s capital, and revenue accounts; recorded on the left side of a T-account.

Question 10

Double-entry accounting

Answer 10

An accounting system where every transaction affects and is recorded in at least two accounts; the sum of the debits for all entries must equal the sum of the credits for all entries.

Question 11

General journal

Answer 11

The most flexible type of journal; typically used to record non-recurring transactions.

Question 12

General ledger

Answer 12

A complete summary of each financial statement account, providing a total balance in each account used in the organization’s chart of accounts. T-Accounts are often utilized for learning purposes to represent the individual general ledger accounts.

Question 13

Journal

Answer 13

A record where transactions are recorded before they are recorded in accounts; transaction amounts are posted from the journal to the ledger; special journals are used to group recurring transactions of a similar nature.

Question 14

Journal entry

Answer 14

An individual transaction that has been entered in the journal. It includes information regarding the dated the transaction is entered, which accounts are debited, which accounts are credited and the corresponding transaction amounts.

Question 15

Journalizing

Answer 15

Recording transactions in a journal.

Question 16

Ledger

Answer 16

A record containing all accounts used by a business.

Question 17

Normal balance

Answer 17

The debit or credit side on which a specific account increases. For example, assets increase with debits, therefore the normal balance for an asset is a debit. Revenues increase with credits; therefore, a credit is the normal balance for a revenue account. Liabilities and Equity have a default credit balance; expense accounts have a default debit balance.

Question 18

Notes payable

Answer 18

Obligations that arise when an organization formally recognizes a promise to pay by signing a promissory note.

Question 19

Notes receivable

Answer 19

Unconditional written promises to pay a definite sum of money on demand or on a defined future date(s); also called promissory notes. They represent an asset, signalling a future benefit on a company’s balance sheet.

Question 20

Post(ing)

Answer 20

Transfer(ring) journal entry information to ledger accounts.

Question 21

Posting reference (PR) column

Answer 21

A column in journals where individual account numbers are entered when entries are posted to the ledger. A column in ledgers where journal page numbers are entered when entries are posted.

Question 22

Prepaid expenses

Answer 22

An asset account containing payments made for assets that are not to be used until later. For example, an annual insurance policy that is paid for upfront provides a benefit of protection for the next 12 months.

Question 23

Promissory notes

Answer 23

Unconditional written promises to pay a definite sum of money on demand or on a defined future date(s); also called notes receivable.

Question 24

Simple journal entry

Answer 24

A journal entry that impacts only two accounts.

Question 25

Slide

Answer 25

An error that results from adding or deleting a zero (or zeros) in a value.

Question 26

T-account

Answer 26

A simple characterization of an account form used as a helpful tool in showing the effects of transactions on specific accounts.

Question 27

Transposition error

Answer 27

Error due to two digits being switched or transposed within a number.

Question 28

Trial balance

Answer 28

A list of accounts and their balances at a point in time; the total debit balances should equal the total credit balances.

Question 29

Unearned revenues

Answer 29

Liabilities created when customers pay in advance for products or services; created when cash is received before revenues are earned. Revenue is earned and the liability is relieved when the products or services are delivered/provided in the future.

Question 30

Four types of transactions that affect Equity

Answer 30

1) Investment by Owner
2) Withdrawal by Owner
3) Revenues
4) Expenses