Module 3 Flashcards
(23 cards)
In a very simplified form, what do accounts do each accounting period?
> Analyze business transactions
Journalize the transactions
Post to ledger accounts
prepare a trial balance
prepare financial statements
Every account can be attributed to what?
> Every account can be attributed to a specific section of the accounting equation, and the balances in these accounts, when I added up, must always leave the equation in balance
What are asset accounts?
> cash
accounts receivable
supplies
furniture
What are liability accounts?
> accounts payable
notes payable
What are equity accounts?
> owner’s capital
owner’s drawings
service revenue
salaries expense
What is the general ledger?
> the general ledger is the place where we keep track of the balances in all of the individual accounts
What are two notable things about a general ledger?
> it may be computerized or maintain manually
each company has its own unique set of accounts.
Historically, what was the general ledger like?
> in the days before computers, the general ledger was a very, very large book with one page for each account.
> Accounting clerks recorded every transaction in this book.
> At the end of the accounting period, the balance from each page was compiled into a set of financial statements, and hopefully your balance sheet was balanced in the end.
What is the general ledger like now?
> this system is usually computerized, and we don’t see the ledger, just the ending financial statements.
What is the main component of any accounting system?
> The general ledger
What is the structure of a T account?
> there is one T account for every account
The left side of any t-account is called a debit, the right side is a credit
the difference between the debit side and the credit side is the account balance.
the balance in each T account when fit into the accounting equation should always leave the equation and balance.
> the balance in each T account when fit into the accounting equation should always leave the equation and balance.
> If the equation does not balance, you either have a recording or mathematical error.
Transactions are recorded as:
> debits and credits
Every transaction affects what? Why is this?
> affects at least two accounts
> (otherwise you will put your equation out of balance)
What keeps the equation in balance?
> equal debits and credits
What does every account have?
> has a “normal balance” that is, a side of the t-account that is usual
What is ALCREW?
A - Assets (normal balance = debit)
L - Liabilities (normal balance = credit)
C - Capital (normal balance = credit)
R - Revenues (normal balance = credit
E - Expenses (normal balance = debit)
W - Withdrawals (Drawings) (normal balance = debit)
What do we never enter in a T-Account?
> a negative number
If you need to change the balance in the opposite direction from the normal balance, what do you do?
Use the opposite side of the T.
What are the four steps of analyzing transactions?
1) Determine which accounts are being affected
2) Determine if account balances are increasing or decreasing
3) Identify the normal balance for each account affected
4) Apply the rules of debits and credits
What does posting on the General Ledger refer to in relation to T-Accounts?
> capture the information from the T-Accounts
What is posting?
> Posting is the act of transferring the information in your general Journal to your General Ledger in order to update the account balances
What is a trial balance?
> a list of all accounts and their balances at a point in time.
it is used to determine if total debits equal the total credits
it is also used to prepare financial statements.
If a trial balance does not balance, what should you do?
1) go back to your journal entries and ensure total debits equal total credits
2) trace each entry to the T accounts to ensure that you recorded the correct amount and it’s on the correct side of the T Account
3) re-calculate the balance in each T account, and don’t forget to include any opening balances.
4) ensure you have accurately transferred the balances in your T accounts to the trial balance again ensure that your debits are on the left
