chapter three notes

Question 1

transaction

Answer 1

an economic event (external or internal)

Question 2

is it true that not all events constitute an economic event or transaction?

Answer 2

yes

ex: signing a contract

Question 3

transaction analysis

Answer 3

studying a transaction to determine its economic effect on the business in terms of the accounting equation

Question 4

what are the two important concepts of transaction analysis?

Answer 4

1. the accounting equation must stay in balance

2. dual effects (at least two accounts are affected)

Question 5

what are the steps of transaction analysis?

Answer 5

1. identify at least two affected accounts
2. classify accounts
3. determine the direction and the amount of the change
4. apply debit and credit rules

Question 6

what are the steps to recording a journal entry?

Answer 6

1. identify a minimum of 2 account titles that summarize the transaction
2. classify the account titles
3. increase or decrease the account with a debit or a credit

Question 7

debits on the ___

Answer 7

left

Question 8

credits on the ___

Answer 8

right

Question 9

t-account

Answer 9

summarizes all transactions for an individual account in one place

Question 10

how do you increase an asset?

Answer 10

debit

Question 11

how do you decrease an asset?

Answer 11

credit

Question 12

what is the normal balance for an asset?

Answer 12

debit

Question 13

how do you increase a liability?

Answer 13

credit

Question 14

how do you decrease a liability?

Answer 14

debit

Question 15

what is the normal balance for a liability?

Answer 15

credit

Question 16

how do you increase stockholder’s equity?

Answer 16

credit

Question 17

how do you decrease stockholder’s equity?

Answer 17

debit

Question 18

what is the normal balance for stockholder’s equity?

Answer 18

credit

Question 19

how do you increase revenue?

Answer 19

credit

Question 20

how do you decrease revenue?

Answer 20

debit

Question 21

how do you increase an expense?

Answer 21

debit

Question 22

how do you decrease an expense?

Answer 22

credit

Question 23

perpetual inventory method

Answer 23

continuously tracking inventory (2 entries)

• record revenue
• record cost of goods sold

Question 24

DEAD

Answer 24

“Debits increase”
Expenses
Assets
Dividends

Question 25

CLEAR

Answer 25

"Credits increase"
Liabilities
Equity
Accumulated Depreciation
Revenue

Question 26

general journal

Answer 26

a chronological listing of transactions

Question 27

trial balance

Answer 27

a list of all accounts in the ledger and their ending balance (credit or debit)

Question 28

what is the purpose of a trial balance?

Answer 28

1. prove debits=credits

2. catch some obvious errors