Chapter 3 Flashcards
Accounting info system
The system of collecting and processing transaction data and communicating financial info to decision makers
Accounting transactions
Economic events that require recording in the financial statements
Summary of Transactions
- Each transaction is analyzed in terms of its effect on assets, liabilities, and stockholders equity
- The two sides of the equation must always be equal
- The cause of each change in stockholders’ equity must be indicated
Account
An individual account record of increases and decreases in a specific asset, liability, stockholders’ equity, revenue, or expense item
Components of a t-account
Title of the account
A left, or debit side
A right, or credit side
Double entry system
The 2-sided effect of each transaction is recorded in appropriate accounts
Debits increase__________ and decrease___________
Assets; liabilities
Credits decrease____________ and increase____________
Assets; liabilities
Asset accounts normally show ________ balances
Debit
Liability accounts normally show __________ balances
Credit
Common stock has a normal _________ balance for _________
Credit; increase
Assets have a normal_______balance for ________
Debit; increase
Liabilities have a normal __________ balance for_________
Credit; increase
Retained earnings have a normal _________ balance for________
Credit; increase
Dividends have a normal _________ balance for _________
Debit; increase
Debits _________ revenue and _______ expenses. Therefore expenses have a normal _________ balance for ________
Decrease;increase;debit;increase
Credits _________ revenue and _________ expenses. Therefore revenue has a normal ________balance for ________
Increase;decrease;credit;increase
3 steps of the recording process
- Analyze each transaction in terms of its effect on the accounts
- Enter the transaction information in a journal
- Transfer the journal information to the appropriate accounts in the ledger
Basic structure of a journal
Keep the equation balanced
Debits come first
Credits indented in
Ledger
The entire group of accounts maintained by a company-it provides the balance in each of the accounts as well as keeps track of changes in these balances
General ledger
Contains all the asset, liability, stockholders equity, revenue, and expense accounts
Posting
Procedure of transferring journal entry amounts to ledger accounts
Trial balance
Lists accounts and their balances at a given time -
Usually prepared at the end of an accounting period-
Proves the mathematical equality of debits and credits
Does NOT prove that all transactions have been recorded or that the ledger is correct
Periodicity assumption
Divides the economic life of a business into artificial time periods
Generally a month, quarter, or year (fiscal year)
Revenue recognition principle
Requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied
Expense recognition principle
Efforts (expenses) must be matched with results (revenues)
normal debit balance accountss
dividends
expenses
assets
