Chapter 4 -The Simple Ledger Flashcards
What is a T-Account?
It is a simple type of account used to explain accounting theory
What is a ledger?
It is where all the accounts are kept together
What is a Double-Entry System of Accounting?
Every transaction is recorded as a debit or a credit in one or more accounts
What is purchase on account
If an item is purchased on credit, this means that it is not paid for at the time of purchase
What is sold on account
When an item is sold on credit, cash is not received at the time it Is sold
What is paid on account
When money is paid out to a creditor to decrease the money owed
What is received on account
When money is received from a debtor to reduce the amount owed
What is a trial balance
It checks the accuracy of ledger methods of taking off a trial balance
What is an account
It is a record that documents each change to items in the accounting equation
What is the debit and credit theory
Debit on the left
Credits on the right
How does a double entry system of accounting work
Transaction is recorded In 2 steps:
It is s first recorded as a debit and then a credit so that the debit balances the credit
What is the purpose of an overdraft agreement
The purpose of this is to pay extra, so the balance goes below zero so that the company is not embarrassed
Why is a trial balance so important
It is important because it checks the accuracy of the ledger - if it is balanced or not
