Chapter 2: Recording Business Transactions Flashcards
(27 cards)
What does the debt ratio show?
The proportion of assets financed with debt.
What can the debt ratio be used to evaluate?
A business’s ability to pay its debts and to determine financial health.
What is a compound journal entry?
A journal entry with multiple debits and/or credits.
What is a trial balance?
A list of all ledger accounts with their balances at a point in time.
What is the first step in the journalizing and posting process?
Identify the accounts and the account type (asset, liability, or equity).
If total debits do not equal total credits, what is one method to locate missing amounts?
Divide the out-of-balance amount by 2.
What is an account?
The detailed record of all increases and decreases that have occurred in an account during a specified period.
What does the accounting equation contain?
Assets, liabilities, and equity.
What is the normal balance for asset accounts?
Debit.
What is the normal balance for liability and equity accounts?
Credit.
Fill in the blank: A _______ is a promise made by the business to pay a debt in the future.
liability.
What is unearned revenue?
Occurs when a company receives cash but has not provided the product or service.
What are dividends?
Distributions of cash or other assets to stockholders.
What are revenues?
Earnings that result from delivering goods or services to customers.
What are expenses?
The cost of selling goods or services.
What is a chart of accounts?
A tool used to organize a company’s accounts.
What is a T-account?
A shortened form of the ledger.
What is double-entry accounting?
A system where transactions involve at least two accounts.
What is the purpose of source documents in accounting?
To provide evidence and data for recording transactions.
What happens during the posting process?
Data from the journal is transferred to the ledger.
What is an accrued liability?
An amount owed but not paid, like Taxes Payable or Salaries Payable.
What does total assets equal in the accounting equation?
Total liabilities plus equity.
True or False: A business’s cash includes bank balances, bills, coins, and checks.
True.
What is the normal balance of the Cash account?
Debit.
