Chapter 2: Vocab

Question 1

account

Answer 1

An accounting equation element. When this element is shown as a separate record, it is known as an account.

Question 2

T account

Answer 2

An account record showing the debit side and credit side of an account record.

Question 3

debits

Answer 3

Are always on the left side of an account.

Question 4

credits

Answer 4

Are always on the right side of an account.

Question 5

balance of the account

Answer 5

The excess of the debits of an asset account over its credits.

Question 6

ledger

Answer 6

A group of accounts for a business entity.

Question 7

chart of accounts

Answer 7

A list of accounts in the ledger.

Question 8

assets

Answer 8

Resources owned by the business entity.

Question 9

liabilities

Answer 9

Debits owed by a business entity to outsiders (creditors).

Question 10

owner’s equity

Answer 10

The owner’s right to the assets of the business after all liabilities have been paid.

Question 11

capital account

Answer 11

In a proprietorship, the owner’s equity.

Question 12

drawing

Answer 12

As an account, it represents the amount of withdrawals made by the owner.

Question 13

revenues

Answer 13

Increases in owner’s equity as a result of selling services or products to customers.

Question 14

expenses

Answer 14

The result of using up assets to consuming services in the process of generating revenues.

Question 15

double-entry accounting system

Answer 15

The accounting system used by all businesses and is based on the accounting equation. It requires every business transaction to be recorded in at least two accounts and the total debits recorded for each transaction to be equal to the total credits recorded.

Question 16

rules of debit and credit

Answer 16

The rules for whether or not an account increase or decrease is a debit or credit.

Question 17

horizontal analysis

Answer 17

The amount of each item on a current financial statement is compared with the same item on an earlier statement.