Chapter 2 Recording Business Transactions Flashcards
what is an account?
a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period.
what are common asset accounts?
cash, accounts receivable, notes receivable, prepaid expenses, land, building, furniture
what are common liability accounts?
accounts payable, notes payable, taxes payable, salaries payable, unearned revenue
what are common equity accounts?
common stock, dividends, revenues, expenses
what is a chart of accounts?
lists a company’s accounts along with account numbers
what is a ledger?
shows the increases and decreases in each account along with their balances
what is double-entry accounting?
requires transactions to be recorded into at least two accounts.
do assets, dividends, and expenses increase with a credit or debit?
increase with debit decrease with credit
do liabilities, common stock, and revenues increase or decrease with a credit or debit?
increase with a credit and decrease with a debit
what is the normal balance?
the increase side of an account
how do you record transactions?
source documents provide the evidence data for transactions; they are recorded in the journal and then posted to the ledger.
what are the 5 steps to journalizing and posting transactions?
Step 1: ID the accounts and the account type
Step 2: Decide if account increases/decreases on DR/CR
Step 3: record the transaction in the journal
step 4: post the journal entry to the ledger
Step 5: determine whether the accounting equation is in balance
what is the trial balance?
summarizes the ledger by listing all the accounts with their balances; assets, liabilities, then equities. Ensures DR=CR to prepare financial statements
how do you use the debt ratio to evaluate business performance?
the debt ratio can be used to evaluate a businesses ability to pay its debts; debt ratio = total liabilities / total assets
what is an account?
a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specified period.
what is accrued liability?
a liability for which the business knows the amount owed but the bill has not been paid
what is a chart of accounts?
a list of all of a company’s accounts with their account numbers
what is a compound journal entry?
a journal entry that is characterized by having multiple debits and/or multiple credits
which side of a T account is for Debits and Credits?
DR=L
CR=R
what is debt ratio?
shows the proportion of assets financed with debt. Total liabilities / total assets
what is a double-entry system?
a system of accounting in which every transaction affects at least two accounts?
what is a journal?
a record of transactions in date order
what is a ledger?
the record holding all the accounts of a business, the changes in those accounts, and their balances.
what is a normal balance?
the balance that appears the increase side of an account
what are notes receivable?
a written promise that a customer will pay a fixed amount of money and interest by a certain date in the future
what are notes payable?
a written promise made by the business to pay a debt, usually involving interest, in the future
what is posting?
transferring data from the journal to the ledger
what is a prepaid expense?
a payment of an expense in advance
what is a source document?
provides the evidence and data for accounting transactions
what is a T account?
a summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits on the right side of the vertical line
what is a trial balance?
a list of all the ledger accounts with their balances at a point in line
what is unearned revenue?
a liability created when a business collects cash from customers in advance of providing services or delivering goods
