Module 3 Study Guide

Question 1

Describe the five types of general ledger accounts

Answer 1

Assets (cash, accounts receivable, property, supplies, inventory, equipment, plant, etc.)
Liabilities (accounts payable, notes payable, unearned revenue)
Owner’s or Stockholder’s Equity (Common stock, retained earnings, capital)
Revenue (sales revenue, interest revenue, dividend revenue, rent revenue)
Expense (car repair expense, travel & entertainment expense, salary expense, miscellaneous expense)

Question 2

What is the double-entry system of accounting?

Answer 2

The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Question 3

How are transactions for the five types of accounts recorded in the ledger (debits and
credits)?

Answer 3

enter in the Cash account the date
enter a short explanation
enter the journal designation (G for General Journal)
enter the journal page number (1 for page 1) from which the debit is posted
enter the dollar amount in the Debit column

Question 4

The recording rules for revenues and expenses are:

Answer 4

Record increases in revenues on the right (credit) side of the Revenue T-account and decreases on the left (debit) side. The reasoning behind this rule is that revenues increase retained earnings, and increases in retained earnings are recorded on the right side of the Retained Earnings T-account.
Record increases in expenses on the left (debit) side of the Expense T-account and decreases on the right (credit) side. The reasoning behind this rule is that expenses decrease retained earnings, and decreases in retained earnings are recorded on the left side of the Retained Earnings T-account.

Question 5

the first three rules of debits and credits:

Answer 5

Increases in asset accounts are debits; decreases are credits.
Decreases in liability accounts are debits; increases are credits.
Decreases in stockholders’ equity accounts are debits; increases are credits.

Question 6

The last three debit and credit rules are:

Answer 6

Decreases in revenue accounts are debits; increases are credits.
Increases in expense accounts are debits; decreases are credits.
Increases in Dividends accounts are debits; decreases are credits.

Question 7

Which agreement provides evidence in accounting that a transaction has occurred?

Answer 7

A source document

Question 8

Which accounting record provides a chronological record of business transactions and is considered the original book of entry?

Answer 8

Journal

Question 9

When a trial balance does not balance, what is the second step in determining the source of the error?

Answer 9

Divide the difference between the columns by 2

Question 10

T-Account

Answer 10

looks like a capital letter T. The name of the account, such as Cash, appears across the top of the T. We record Debits on one side of the vertical line of the T-account and Credits on the other side.

Question 11

Which accounting record would be needed to verify whether the total debits equal the total credits for the accounts?

Answer 11

trial balance

Question 12

Which accounts are considered temporary or nominal?

Answer 12

Income statement accounts and the Dividends account are nominal accounts because they are merely sub classifications of the stockholders’ equity accounts. Nominal accounts are also called temporary accounts because they temporarily contain revenue, expense, and dividend information that is transferred (or closed) to the Retained Earnings account at the end of the accounting period. The balances in each of these temporary accounts are zero after they are closed to Retained Earnings at the end of the accounting period.

Question 13

Which accounts have a normal balance of a debit in the respective accounts?

Answer 13

assets, expenses, dividends declared

Question 14

account

Answer 14

part of the accounting system used to classify and summarize the increases, decreases, and balances of each asset, liability, stockholders’ equity, dividend, revenue, and expense item.

Question 15

debit

Answer 15

refers to placing an entry on the left side of the T-account. Debit simply means left side. (abbreviated Dr.)

Question 16

real accounts

Answer 16

not sub classifications or subdivisions of any other account. Balance sheet accounts are real accounts.

Question 17

permanent accounts

Answer 17

balances are not transferred (or closed) to any other account at the end of the accounting period. Balance sheet accounts are permanent accounts. They are never closed or zeroed out like Temporary accounts are.

Question 18

nominal accounts

Answer 18

are merely sub classifications of the stockholders’ equity accounts. Income statement accounts and the Dividends account are Nominal Accounts. Nominal literally means “in name only.”

Question 19

temporary accounts

Answer 19

Nominal accounts are also called temporary accounts because they temporarily contain revenue, expense, and dividend information that is transferred (or closed) to the Retained Earnings account at the end of the accounting period.

Question 20

chart of accounts

Answer 20

a complete listing of the titles and numbers of all the accounts in the ledger.

Question 21

trial balance

Answer 21

a listing of the ledger accounts and their debit or credit balances to determine that the total dollar amount of debits equals the total dollar amount of credits in the recording process.

Question 22

transposition error

Answer 22

occurs when two digits are reversed in an amount.

Question 23

basic accounting equation

Answer 23

assets=liabilities + stockholders equity

Question 24

5 Types of General Ledger Accounts

Answer 24

1. assets
2. liabilities
3. owners or stockholders equity
4. revenue
5. expenses