Chapter 2 - Accounting For Business Transactions Flashcards
5 Steps in Processing Transactions
- Identify
- Analyze
- Record
- Post
- Prepare
Source documents
Identify and describe transactions and events. Can either be hard copy or electronic. Objective and reliable evidence.
Ex:
Receipts
Checks
Bank statements
Account
The record of increase and decrease in a specific asset, liability, equity, revenue, or expense.
General ledger
A record of ALL the accounts USED by a company.
Asset Accounts
- Cash
- Accounts Receivable
- Note Receivable
- Prepaid Accounts
- Supplies
- Equipment
- Building
- Land
Prepaid - Keyword for?
Asset account
Receivable - Keyword for?
Asset account
Payable - Keyword for?
Liability account
Unearned - Keyword for?
Liability account
Debit
INCREASES on the LEFT side
Credit
INCREASES on the RIGHT side
6 Common Categories
- Assets
- Liabilities
- Stockholders Equity
- Dividends
- Revenue
- Expenses
What two accounts are equity accounts?
- Stockholders equity
2. Retained Earnings
Normal balance
The increasing side of an account
Normal Balance of Debit
Accounts that INCREASE on the LEFT
ADE
Accounts with a normal balance of DEBIT
A - Asset
D - Dividends
E - Expenses
RSL
Accounts with normal balance of CREDIT
R - Revenue
S - Stockholders Equity
L - Liability
Journal
Gives a complete record of EACH TRANSACTION in one place. Shows debits and credits for each transaction.
Posting
Process of transferring journal entry information to the ledger.
Trial balance
A list of all ledger accounts and their balances at a point in time.
Steps to prepare a trial balance
- List each account and it’s amount
- Compute the total of debit balances and credit balances
- Verify total debit balances equal total credit balances
