Module 2

Question 1

What is the Double-Entry System?

Answer 1

It is a system of accounting in which every transaction affects at least two accounts.

Question 2

What is the General Ledger?

Answer 2

The General Ledger is the central place that stores every accounting entry a company makes.

Question 3

What is a Journal Entry?

Answer 3

A Journal Entry is a record of a financial transaction.

Question 4

What is an Account?

Answer 4

An Account is a place where we record, sort and store all financial transactions that affect a related group of items.

Question 5

What are the 6 main types of accounts?

Answer 5

• Assets
• Liabilities
• Equity
• Revenues
• Expenses
• Withdrawals (Dividends)

Question 6

What is an Economic Benefit?

Answer 6

An Economic Benefit is the potential for an asset to contribute either directly or indirectly to the flow of an entity´s cash.

Question 7

What are Debits?

Answer 7

Debits represent the flow of economic benefits to a destination.

Question 8

What are Credits?

Answer 8

Credits represent the flow of economic benefits from a source.

Question 9

What is a T-Account?

Answer 9

A T-Account is a visual representation of an account.

Question 10

What is the Normal Balance?

Answer 10

The Normal Balance is the balance that appears on the increase side of an account.

Question 11

Faithful Representation Concept:

Answer 11

Provides evidence and data for recording transactions

Question 12

Purchase Invoice:

Answer 12

Documents that tell the business how much and when to pay a vendor for purchase on
account, such as office supplies.

Question 13

Bank Checks:

Answer 13

Documents that illustrate the amount and date of cash payments.

Question 14

Sales Invoices:

Answer 14

Documents provided to clients when a business sells services or goods; tells the
business how much revenue to record.

Question 15

Posting:

Answer 15

Transferring data from the journal to the ledger.

Question 16

Journal:

Answer 16

A record of transactions in date order

Question 17

Ledger:

Answer 17

A record of transactions in T-account format

Question 18

Accrued Liability

Answer 18

The term “accrued liability” refers to an expense incurred but not yet paid for by a business.

Question 19

An accounting entry that is characterized by having multiple debits and/or multiple credits is called a ________
entry.

Answer 19

compound journal

Question 20

Trial Balance:

Answer 20

A list of all ledger accounts and their balances at a point in time

Question 21

List 2 purposes of the trial account:

Answer 21

-> 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

Question 22

Trial Balance:

Answer 22

Accounting report showing the closing balances of all general ledger accounts at a point in time.

Question 23

Debt ratio =

Answer 23

Total liabilities / Total assets

Question 24

What does the debt ratio show?

Answer 24

Shows the proportion of assets financed with debts

Question 25

What are the applications and beneftits from the debt ratio?

Answer 25

• > 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