Chapter 2: Recording Business Transactions Flashcards
Account
The detailed record of all the changes that have occured in an individual asset, liability, or owner’s equity (or stockholders’ equity for a corporation) during a specified period
It is the basic summer device of accounting
Journal
The chronological record of transactions
Ledger
the record book holding all the accounts with thier balances
Trial balance
The list of all the ledger accounts with thier balances
Asset Accounts
Cash
Accounts Receivable
Notes Receivable
Prepaid Expenses
Land
Building
Equiptment, Furniture, and FIxtures
Liabilities Accounts
Accounts Payable
Notes Payable
Accrued Liabilities
Owner’s Equity Accounts
Capital
Drawings
Revenues
Expenses
Chart of Accounts
(and define account numbers)
A list of all the company’s accounts and thier account numbers
The chart is subject to change as the business evolves
Account numbers = unique to each account - usually two or more digits.
The first number of accounts:
- Assets = 1
- Liabilities = 2
- Owner’s Equity = 3
- Revenues = 4
- Expenses = 5
Second and third numbers indiciate where the acount fits within the category
Each business transaction has dual effects including..
The recieving side
The giving side
The Double-Entry System
A system of accounting where every transaction affects at least two accounts
thus we record the dual effects of each transaction
The T-Account
Summary device that is shaped like a capital “T” with debits posted on the left side and credits on the right side.
A “shorthand” version of a ledger
Debit
The left side of an account
abbreviated as: DR
Credit
The right side of an account
abbreviated as: CR
Rules of Debit & Credit
for Assets
Debit = +
Credit = -
Rules of Debit & Credit
for Liabilities
Debit = -
Credit = +
Rules of Debit & Credit
for Owner’s Equity
Debit = -
Credit = +
Rules of Debit & Credit
for Capital
Debit = -
Credit = +
Rules of Debit & Credit
for Revenues
Debit = -
Credit = +
Rules of Debit & Credit
for Expenses
Debit = +
Credit = -
Rules of Debit & Credit
for Drawing
Debit = +
Credit = -
The Journalizing Process
(Three Steps)
- Identify each account affected and its type
- Determine whether each account is increased or decreased (use rules of debit and credit)
- Record trasaction in the journal, including breif explanation. Debit side of the entry is entered first. The credit side is indented and on next line.
* Step 3 also called “making the journal entry” or “journalizing the transaction”*
Posting
The process of copying amounts from the journal to the ledger
we post from the journal to the ledger
Normal Balance
The balance that appears on the side of an account - either debit or credit - where we record an increase in the account’s balance.
“debit-balance”
meaning debit increased
“credit-balance”
meaning credit increased
A Compound Journal Entry
has more than two debit an/or credit accounts, but total debits still must equal total credits
