Ch. 3: Recording Business Transactions Flashcards
Journal
A book of original or first entry. The basic two-column journal provides for entering business transactions in dated order. All parts of every transaction are recorded, and provision is made for adequate explanation.
Posting
The process of transferring debits and credits from the journal to the appropriate ledger account.
Debit
The left side of a ledger account. It represents a position or location within a specific account.
Credit Balance
The balance that results when the total credit amount exceeds the total debit amount.
Post Reference Column
A column in a ledger account used to indicate the source of an entry; conversely, a column in a journal indicating the ledger account to which an entry was posted.
Account
An individual record of specific items that a business owns (assets) and owes (liabilities), as well as a recognition of ownership (capital).
Compound Entry
A journal entry in which two or more accounts are debited or credited as part of the transaction. If the compound entry contains two debits and one credit, the total value assigned to the debits must agree with the value of the credit entry, as required by double-entry accounting.
Ledger
A book of secondary or final entry, containing individual accounts. The term “ledger account” refers to an individual account in the ledger. A ledger may be a bound book, a looseleaf-type book, or a computer printout.
Credit
The right side of a ledger account. It represents a position or location within a specific account.
Business Transaction
Any business activity that affects what a business owns or owes, as well as the ownership of the business.
Chart of Accounts
The table of contents of a ledger—a listing of the account pages and account titles in the ledger. It is traditionally set up in the order of the accounting equation, that is, assets followed by liabilities, permanent capital, and temporary capital accounts.
Drawing Account
A temporary capital account, set up in the name of the sole proprietor or a partner, from which he or she can withdraw money or other assets in anticipation of profit.
Balance
The value or worth, expressed in monetary terms, of a specific ledger account. An individual account may be said to have a debit balance, a credit balance, or no (zero) balance.
Trial Balance
A record prepared at any moment in time to prove the accuracy of the ledger. If the totals of the debit and credit balances in the individual ledger accounts agree, the ledger is said to be in balance.
Double-entry Acounting
“A method of accounting in which, for every debit entry, there must be a corresponding credit entry of the same amount. Every business transaction must be represented by at least two changes.
