Recording Transactions Flashcards
The Recording Process:
The process of recording transactions has six steps:
Identify Transaction, Understand Transaction, Create Journal Entry, Post to T-Accounts, Create Trial Balance, and Create Financial Statements.
What do debits and credits really mean?
Debits go in the left column, and credits go in the right column of journal entries, T-accounts, and trial balances.
When you want to increase an asset account, you debit that account. Likewise, when you want to decrease the balance in a liability or equity account, you debit that account.
ACCOUNTS PAYABLE increases with a
CREDIT
CASH decreases with a
CREDIT
NOTES RECEIVABLE increases with a
DEBIT
COMMON STOCK decreases with a
DEBIT
PROPERTY, PLANT & EQUIPMENT decreases with a
CREDIT
LONG TERM DEBT increases with a
CREDIT
RETAINED EARNINGS increases with a
CREDIT
A trial balance is
simply a list of all of the business’ accounts that have balances at that date, and the amount in each account.
Under the cash method of accounting, transactions are recorded when _____.
under the accrual method of accounting, transactions are recorded in ________.
Under the cash method of accounting, transactions are recorded when cash is exchanged, whereas under the accrual method of accounting, transactions are recorded in the accounting period to which they relate, regardless of when cash is exchanged.
Deferred Revenue =
Deferred revenue (also sometimes referred to as unearned revenue) is a liability account. It represents the obligation to provide goods or services that has not yet been fulfilled.
Prepaid Expense =
Prepaid Expense is NOT an Expense Account.
Prepaid Expense is an asset account. It represents an amount that has been prepaid by the business, and thus the business now has the right to receive goods or services in the future. Prepaid expense will be converted into an expense at a later date, when the goods or services are provided.
