Chapter 2- Key Terms

Question 1

Account

Answer 1

Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue, or expense.

Question 2

Account Balance

Answer 2

Difference between total debits and total credits (including the beginning balance) for an account.

Normal Balance:

                                Dr.      Cr.
A.ssets                    +          -
L.iabilities                -          +
O.wner's Equity       -          +
R.evenues               -          +
E.xpenses               +          -

Question 3

Balance Column Account

Answer 3

Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry.

Question 4

Chart of Accounts

Answer 4

List of accounts used by a company; includes an identification number for each account.

Assets Accounts (100's)
Liabilities Accounts (200's)
Equity Accounts (300's)
Revenues Accounts (400's)
Expenses Accounts (500's-600's)

Question 5

Compound Journal Entry

Answer 5

Journal entry that affects at least three accounts.

Question 6

Credit

Answer 6

Recorded on the right side; an entry that decreases an asset or expense account, or increases a liability, revenue, or equity account; abbreviated Cr.

Question 7

Creditors

Answer 7

Individuals or organizations entitled to receive payments.

Question 8

Debit

Answer 8

Recorded on the left side; an entry that increases an asset or expense account, or decreases a liability, revenue, or equity account; abbreviated Dr.

Question 9

Debt Ration

Answer 9

Ratio of total liabilities to total assets; used to reflect risk associated with a company’s debts.

Formula:

Debt Ration = Total Liabilities/ Total Assets

Question 10

Debtors

Answer 10

Individuals or organizations that owe money.

Question 11

Double-entry Accounting

Answer 11

Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit.

• At least two accounts are involved, with at least one debit and one credit.
• Total amount debited must equal total amount credited.

Question 12

General Journal

Answer 12

All-purpose journal for recording the debits and credits of transactions and events.

Question 13

General Ledger

Answer 13

Record containing all accounts (with amounts) for a business; also called ledger.

Question 14

Journal

Answer 14

Record in which transactions are entered before they are posted to ledger accounts; also called book of original entry.

Question 15

Journalizing

Answer 15

Process of recording transactions in a journal.

Question 16

Ledger

Answer 16

Record containing all accounts (with amounts) for a business; also called general ledger.

Question 17

Posting

Answer 17

Process of transferring journal entry information to the ledger; computerized systems automate this process.

Question 18

Posting Reference (PR) Column

Answer 18

A column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts.

Question 19

Source Documents

Answer 19

Source of information for accounting entries that can be in either paper or electronic form; also called business papers.

Question 20

T-Account

Answer 20

Tool used to show the effects of transactions and events on individual accounts; shaped in the form of a T.

___________________
Debit | Credit
|
|

Question 21

(Unadjusted) Trial Balance

Answer 21

List of ledger accounts and their balances (either debit or credit) at a point in time.

*Total debit balances equal total credit balances.

Question 22

Unearned Revenue

Answer 22

Liability created when customers pay in advance for products or services; earned when the products or services are later delivered.