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Flashcards in Chapter 2 Deck (30):
1

Account

A record within an accounting system in which the increases and decreases in a specific asset, liability, or equity are recorded and stored.

2

Account balance

The total for a specific account. It is calculated by determining the difference between the increases (including the beginning balance) and decreases recorded in an account over a period.

3

Accounting cycle

The steps repeated each reporting period for the purpose of preparing financial statements for users.

4

Accounts payable

Obligations that arise when the company promises to pay a supplier/service provider in the future for purchases of merchandise, supplies, or equipment.

5

Accounts receivable

An asset representing the amount owed to the company from their customers. Accounts receivable are created when services are performed for or goods are sold to customers in return for promises to pay in the future. These transactions are said to be on credit or on account. Accounts receivable are increased by services performed or goods sold on credit and decreased by customer payments.

6

Chart of accounts

A list of all accounts used by a company; includes the identification number assigned to each account.

7

Compound journal entry

A journal entry that affects at least three accounts.

8

Credit

An entry that decreases asset, expense, and owner's withdrawals accounts or increases liability, owner's capital, and revenue accounts; recorded on the right side of a T-account.

9

Debit

An entry that increases asset, expense, and owner's withdrawals accounts or decreases liability, owner's capital, and revenue accounts; recorded on the left side of a T-account.

10

Double-entry accounting

An accounting system where every transaction affects and is recorded in at least two accounts; the sum of the debits for all entries must equal the sum of the credits for all entries.

11

General journal

The most flexible type of journal; typically used to record non-recurring transactions.

12

General ledger

A complete summary of each financial statement account, providing a total balance in each account used in the organization's chart of accounts. T-Accounts are often utilized for learning purposes to represent the individual general ledger accounts.

13

Journal

A record where transactions are recorded before they are recorded in accounts; transaction amounts are posted from the journal to the ledger; special journals are used to group recurring transactions of a similar nature.

14

Journal entry

An individual transaction that has been entered in the journal. It includes information regarding the dated the transaction is entered, which accounts are debited, which accounts are credited and the corresponding transaction amounts.

15

Journalizing

Recording transactions in a journal.

16

Ledger

A record containing all accounts used by a business.

17

Normal balance

The debit or credit side on which a specific account increases. For example, assets increase with debits, therefore the normal balance for an asset is a debit. Revenues increase with credits; therefore, a credit is the normal balance for a revenue account. Liabilities and Equity have a default credit balance; expense accounts have a default debit balance.

18

Notes payable

Obligations that arise when an organization formally recognizes a promise to pay by signing a promissory note.

19

Notes receivable

Unconditional written promises to pay a definite sum of money on demand or on a defined future date(s); also called promissory notes. They represent an asset, signalling a future benefit on a company's balance sheet.

20

Post(ing)

Transfer(ring) journal entry information to ledger accounts.

21

Posting reference (PR) column

A column in journals where individual account numbers are entered when entries are posted to the ledger. A column in ledgers where journal page numbers are entered when entries are posted.

22

Prepaid expenses

An asset account containing payments made for assets that are not to be used until later. For example, an annual insurance policy that is paid for upfront provides a benefit of protection for the next 12 months.

23

Promissory notes

Unconditional written promises to pay a definite sum of money on demand or on a defined future date(s); also called notes receivable.

24

Simple journal entry

A journal entry that impacts only two accounts.

25

Slide

An error that results from adding or deleting a zero (or zeros) in a value.

26

T-account

A simple characterization of an account form used as a helpful tool in showing the effects of transactions on specific accounts.

27

Transposition error

Error due to two digits being switched or transposed within a number.

28

Trial balance

A list of accounts and their balances at a point in time; the total debit balances should equal the total credit balances.

29

Unearned revenues

Liabilities created when customers pay in advance for products or services; created when cash is received before revenues are earned. Revenue is earned and the liability is relieved when the products or services are delivered/provided in the future.

30

Four types of transactions that affect Equity

1) Investment by Owner
2) Withdrawal by Owner
3) Revenues
4) Expenses