Chapter 3 Flashcards
accounting transactions
recordable events
basic accounting equation
assets= stockholders equity + liabilities
must always balance
when stock is issued
assets and stockholders equity goes up
note issued in exchange for cash
cash and liabilities go up
purchased equip with cash
-500 on cash but +500 on equip. assets stayed the same
cash in advance from customer
+1200 assets, +1200 liabilities
service provided for cash
+10,000 assets, +10,000 rev
basic equation
assets= liabilities + stockholders equity (common stock and retained earnings) (retained earnigs=revenues-expenses-dividends)
assets in relation to debit and credits
debits= increase assets/ decrease liabilities credits= decrease assets/ increase liabilities
common stock (db/cr)
debits decrease common stock/credits increase common stock. because when cash is invested in the business, cash is debited and common stock is credited
retained earnings (db/cr)
decreased by debits/increased by credits.
dividends (db/cr)
debit for increase/ credit for decrease. they result in a reduction of the stockholders claim on retained earnings
expenses (db/cr)
debits increase expenses/decrease expenses.
revenues (db/cr)
debits decrease revenue/credits increase revenue
review page 116
sum of debits and credits
general journal
- tells complete effect of transaction 2. chronological order 3. helps prevent errors because debits and credits are easily visible
posting
this process accumulates the effects of journalized transactions in the individual accounts.
trial balance
lists accounts and their balances at a given time. they prove the mathematical equality of debits and credits after posting. it may also uncover errors in journalizing and posting. useful when preparing financial statements. errors may still occur
