Transactions and Accounts Flashcards
What are transactions?
Events that have an economic impact on the entity which are recorded as part of the accounting process.
Bonus: External transactions are exchanges with another entity, but what is an example of an internal transaction? (p.50)
Are contracts transactions?
No. The transaction occurs when one party performs.
What is the Chart of Accounts?
The list of all account titles and their identifying numbers.
In what order are accounts listed on the Chart of Accounts?
Assets, Liabilities, Stockholders’ Equity, Revenue, Expense
Name some unusual asset accounts.
Investments, prepaid expenses, supplies, intangibles.
Name some unusual liability accounts.
Unearned revenue.
Name all stockholders’ equity accounts.
Common Stock, Additional Paid-In Capital, Retained Earnings
Name some unusual expenses.
Cost of goods sold
What is an account?
A list of transactions and their dollar effects.
What is transaction analysis?
The process of studying a transaction to determine its economic effect on the business in terms of the accounting equation.
What are the two principles underlying transaction analysis?
- Every transaction affects at least two accounts. (Aka, “matching” or the “dual effect”.)
- The accounting equation must remain in balance after every transaction.
What effects do debits have on accounts?
They increase asset accounts and they decrease liability and equity accounts.
(Something is owed to the company.)
What effects do credits have on accounts?
They decrease asset accounts and they increase liability and equity accounts.
(The company has used another’s resources.)
Why is revenue a special case?
Because as it falls under “equity,” an increase in revenue falls on the right side of the accounting equation. Thus, debits decrease it and credits increase it.
