Chapter 2: Recording Business Transactions

Question 1

Account

Answer 1

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

Question 2

Journal

Answer 2

The chronological record of transactions

Question 3

Ledger

Answer 3

the record book holding all the accounts with thier balances

Question 4

Trial balance

Answer 4

The list of all the ledger accounts with thier balances

Question 5

Asset Accounts

Answer 5

Cash

Accounts Receivable

Notes Receivable

Prepaid Expenses

Land

Building

Equiptment, Furniture, and FIxtures

Question 6

Liabilities Accounts

Answer 6

Accounts Payable

Notes Payable

Accrued Liabilities

Question 7

Owner’s Equity Accounts

Answer 7

Capital

Drawings

Revenues

Expenses

Question 8

Chart of Accounts

(and define account numbers)

Answer 8

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

Question 9

Each business transaction has dual effects including..

Answer 9

The recieving side

The giving side

Question 10

The Double-Entry System

Answer 10

A system of accounting where every transaction affects at least two accounts

thus we record the dual effects of each transaction

Question 11

The T-Account

Answer 11

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

Question 12

Debit

Answer 12

The left side of an account

abbreviated as: DR

Question 13

Credit

Answer 13

The right side of an account

abbreviated as: CR

Question 14

Rules of Debit & Credit

for Assets

Answer 14

Debit = +

Credit = -

Question 15

Rules of Debit & Credit

for Liabilities

Answer 15

Debit = -

Credit = +

Question 16

Rules of Debit & Credit

for Owner’s Equity

Answer 16

Debit = -

Credit = +

Question 17

Rules of Debit & Credit

for Capital

Answer 17

Debit = -

Credit = +

Question 18

Rules of Debit & Credit

for Revenues

Answer 18

Debit = -

Credit = +

Question 19

Rules of Debit & Credit

for Expenses

Answer 19

Debit = +

Credit = -

Question 20

Rules of Debit & Credit

for Drawing

Answer 20

Debit = +

Credit = -

Question 21

The Journalizing Process

(Three Steps)

Answer 21

1. Identify each account affected and its type
2. Determine whether each account is increased or decreased (use rules of debit and credit)
3. 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”*

Question 22

Posting

Answer 22

The process of copying amounts from the journal to the ledger

we post from the journal to the ledger

Question 23

Normal Balance

Answer 23

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

Question 24

A Compound Journal Entry

Answer 24

has more than two debit an/or credit accounts, but total debits still must equal total credits

Question 25

Accrued Liability

Answer 25

A liability for which the business knows the amount owed but the bill has not been paid

Question 26

Note Receivable

Answer 26

A written promise for future collection of cash

Question 27

Notes Payable

Answer 27

Represents debts the business owes because it signed promissory notes to borrow money or to purchase something

Question 28

Prepaid Expenses

Answer 28

Expenses paid in advance of thier use