Chapter 2 Terms

Question 1

Has future purchasing power. E.g.: Coins, currency, cheques, and bank account balances.

Answer 1

cash

Question 2

Occur when products or services are sold on account or on credit. When a sale occurs on account or on credit, the customer has not paid cash but promises to pay in the future.

Answer 2

accounts receivable

Question 3

A promise from someone outside the organization to pay an amount on a specific future date plus a predetermined amount of interest.

Answer 3

notes receivable

Question 4

Supplies to be used in the future. If the supplies are used before the end of the accounting period, they are an expense instead of an asset.

Answer 4

office supplies

Question 5

Items to be sold in the future.

Answer 5

merchandise inventory

Question 6

Represents an amount paid in advance for insurance. The prepaid insurance will be used in the future.

Answer 6

prepaid insurance

Question 7

Represents an amount paid in advance for rent that will be used in the future.

Answer 7

prepaid rent

Question 8

Cost must be in a separate account from any building. Used over future periods.

Answer 8

land

Question 9

Indirectly help a business generate revenue over future accounting periods since they provide space for day-to-day operating activities.

Answer 9

buildings

Question 10

accumulates detailed information regarding the increases and decreases in a specific asset, liability, or equity item.

Answer 10

account

Question 11

Books where the accounts are maintained.

Answer 11

ledger

Question 12

cash, accounts receivable, notes receivable, office supplies, merchandise inventory, prepaid insurance, prepaid rent, land, buildings

Answer 12

asset accounts

Question 13

accounts payable, wages payable, short-term notes payable, long-term notes payable, unearned revenues

Answer 13

liability accounts

Question 14

An obligation to pay for an asset in the future. The purpose is to finance investing activities that include the purchase of assets like land, buildings, and equipment.

Answer 14

liability

Question 15

Debts owed to creditors for goods purchased or services received as a result of day-to-day operating activities. (Do not involve interest)

Answer 15

accounts payable

Question 16

Wages owed to employees for work performed.

Answer 16

wages payable

Question 17

Debt owed to a bank or other creditor that is normally paid within one year. These involve interest.

Answer 17

short-term notes payable

Question 18

Debt owed to a bank or other creditor that is normally paid beyond one year. These involve interest.

Answer 18

long-term notes payable

Question 19

Payments received in advance of the product or service being provided. The business owes a customer the product/service.

Answer 19

unearned revenues

Question 20

Net assets owned by the owners of a business

Answer 20

equity

Question 21

Represents the investments made by owners into the business and causes equity to increase.

Answer 21

share capital

Question 22

The sum of all net incomes earned over the life of the corporation to date, less any dividends distributed to shareholders over the same time period. Includes revenues, expenses, and dividends.

Answer 22

retained earnings

Question 23

The left side records debit entries and the right side records credit entries. A teaching/learning tool to show increases and decreases in an account.

Answer 23

T-account

Question 24

Asset is increased

Answer 24

record with debit

Question 25

Asset is decreased

Answer 25

record with credit

Question 26

Dividend is decreased

Answer 26

record with debit

Question 27

Dividend is increased

Answer 27

record with credit

Question 28

Expense is increased

Answer 28

record with debit

Question 29

Expense is decreased

Answer 29

record with credit

Question 30

Liabilities are increased

Answer 30

record with credit

Question 31

Liabilities are decreased

Answer 31

record with debit

Question 32

Share capital is increased

Answer 32

record with credit

Question 33

Share capital is decreased

Answer 33

record with debit

Question 34

Revenue is increased

Answer 34

record with credit

Question 35

Revenue is decreased

Answer 35

record with debit

Question 36

Equity is increased

Answer 36

record with credit

Question 37

Equity is decreased

Answer 37

record with debit

Question 38

Debits cause an office salaries expense to ___________.

Answer 38

increase

Question 39

Determined by adding and subtracting the increases and decreases in an account.

Answer 39

account balance

Question 40

A positive sum on the side on which increases occur.

Answer 40

normal balance

Question 41

A list of accounts where each account is assigned both a name and a number.

Answer 41

chart of accounts

Question 42

Begin with 1 on the chart of accounts

Answer 42

assets

Question 43

Begin with 2 on the chart of accounts

Answer 43

liabilities

Question 44

Begin with a 3 on the chart of accounts

Answer 44

share capital, retained earnings, and dividends

Question 45

Begin with a 4 on the chart of accounts

Answer 45

revenue accounts

Question 46

Begin with a 5 on the chart of accounts

Answer 46

cost of goods sold accounts or expense accounts if they don't have cost of goods sold

Question 47

Begin with a 6 on the chart of accounts

Answer 47

expense accounts, or blank if they don't have cost of goods sold

Question 48

Each transaction is recorded in at least two accounts where total debits always equal the total credits.

Answer 48

double-entry accounting

Question 49

An internal document that lists all of the account balances at a point in time to help prove that the accounting equation is in balance. Total debits must equal total credits.

Answer 49

trial balance

Question 50

The income statement is linked to what financial statement?

Answer 50

Statement of Changes in Equity because net income causes equity to change.

Question 51

The statement of changes in equity is linked to what financial statements?

Answer 51

The balance sheet since the share capital and retained earnings on the changes in equity sheet are transferred to the balance sheet. The balance sheet summarizes equity. The income statement helps to give information for the statement of changes in equity too since net income causes equity to change.

Question 52

A document that is used to chronologically record a business's debit and credit transactions.

Answer 52

general journal (also known as journal, or book of original entry)

Question 53

The process of recording a financial transaction in the journal.

Answer 53

journalizing

Question 54

A debit and credit entry recorded in the journal.

Answer 54

journal entry

Question 55

A record that contains all of the business's accounts.

Answer 55

ledger (also known as general ledger, or book of final entry)

Question 56

The process of transferring amounts from the journal to the matching ledger accounts.

Answer 56

posting

Question 57

A formal variation of the T-account similar to what is used in electronic accounting programs.

Answer 57

ledger account

Question 58

The general ledger is used as a ___________ for the subledgers (subsidiary ledgers).

Answer 58

control account

Question 59

State the four first steps in the accounting cycle (usually 8 steps, but this is for beginners who don't know about adjustment entries and closing entries)

Answer 59

1. journalize: transactions are analyzed and journalized in the general journal I think 2. post: transactions are summarized by account in the ledgers 3. unadjusted trial balance: check debits = credits 4. prepare financial statements: summarized transactions are communicated