Module 2 Flashcards
What is the Double-Entry System?
It is a system of accounting in which every transaction affects at least two accounts.
What is the General Ledger?
The General Ledger is the central place that stores every accounting entry a company makes.
What is a Journal Entry?
A Journal Entry is a record of a financial transaction.
What is an Account?
An Account is a place where we record, sort and store all financial transactions that affect a related group of items.
What are the 6 main types of accounts?
- Assets
- Liabilities
- Equity
- Revenues
- Expenses
- Withdrawals (Dividends)
What is an Economic Benefit?
An Economic Benefit is the potential for an asset to contribute either directly or indirectly to the flow of an entity´s cash.
What are Debits?
Debits represent the flow of economic benefits to a destination.
What are Credits?
Credits represent the flow of economic benefits from a source.
What is a T-Account?
A T-Account is a visual representation of an account.
What is the Normal Balance?
The Normal Balance is the balance that appears on the increase side of an account.
Faithful Representation Concept:
Provides evidence and data for recording transactions
Purchase Invoice:
Documents that tell the business how much and when to pay a vendor for purchase on
account, such as office supplies.
Bank Checks:
Documents that illustrate the amount and date of cash payments.
Sales Invoices:
Documents provided to clients when a business sells services or goods; tells the
business how much revenue to record.
Posting:
Transferring data from the journal to the ledger.
Journal:
A record of transactions in date order
Ledger:
A record of transactions in T-account format
Accrued Liability
The term “accrued liability” refers to an expense incurred but not yet paid for by a business.
An accounting entry that is characterized by having multiple debits and/or multiple credits is called a ________
entry.
compound journal
Trial Balance:
A list of all ledger accounts and their balances at a point in time
List 2 purposes of the trial account:
-> Manual System: Provides accuracy check
by showing whether total debits = total credits
-> All Accounting Systems: A useful summary
of accounts and their balances at a point in
time
Trial Balance:
Accounting report showing the closing balances of all general ledger accounts at a point in time.
Debt ratio =
Total liabilities / Total assets
What does the debt ratio show?
Shows the proportion of assets financed with debts
What are the applications and beneftits from the debt ratio?
- > Can be used to evaluate a business’s ability to pay back its debts
- > Companies that have higher percentage of liabilities are at greater risk of default
