Chapter 3 Flashcards
The accounting information system
Accounting information system
The system of collecting and processing transaction data and communicating financial information to decision makers.
Accounting cycle (9 steps)
A series of nine steps used to account for, and report, transactions.
- Analyze transactions
- Journalize transactions
- Post transactions
- Prepare a trial balance
- Journalize and post adjusting entries
- Prepare an adjusted trial balance
- Prepare financial statements
- Journalize and post closing entries
- Prepare a post-closing trial balance
Accounting transaction
An economic event that is recorded in the financial statements because it involves an exchange that affects assets, liabilities, and/or shareholders’ equity.
Account
An individual accounting record of increases and decreases in a specific asset, liability, and/or shareholders’ equity item.
T-Account (General Ledger Account)
Basic form of an account, with a debit (left) side and credit (right) side showing the effect of transactions on the account.
Debit
The left side of an account.
Credit
The right side of an account.
Normal balance
Which sides, for assets, liabilities, shareholders’ equity accounts?
The side of an account used to increase the account.
- Assets: Normal debit balance
- Liabilities & Shareholders’ Equity: Normal credit balances
- Common Shares, Retained Earnings & Revenue: Normal credit balances
- Expense & Dividends Declared: Normal debit balances
Double-entry accounting system
A system that records the dual effect of each transaction in appropriate accounts.
General journal
The book of original entries in which transactions are recorded in chronological (date) order.
General ledger
The book of accounts that contains a company’s asset, liability, and shareholders’ equity accounts.
Chart of accounts
A list of a company’s accounts and account numbers that identify where the accounts are in the general ledger.
Posting
The procedure of transferring journal entries to the general ledger accounts.
Trial balance
A list of general ledger accounts and their balances at a specific time, usually at the end of the accounting period. There are three different kind of trial balances: unadjusted (before adjusting entries are made), adjusted (after adjusting entries are made), and post-closing trial balances (after closing entries are made).
