Recording Process Flashcards
(24 cards)
What is an account in accounting?
An accounting record of increases and decreases in a specific asset, liability, or owner’s equity item.
Each company maintains separate accounts for elements like Cash, Accounts Receivable, Accounts Payable, Revenue, and Expenses.
What is the basic form of an account?
A T-account, consisting of a title, a left (debit) side, and a right (credit) side.
What do the terms ‘debit’ and ‘credit’ indicate?
‘Debit’ indicates left, and ‘credit’ indicates right.
What is the rule regarding debits and credits in transactions?
For each transaction, debits must equal credits in the accounts.
How do debits and credits affect asset accounts?
Assets increase with debits, decrease with credits. Normal balance is a debit.
How do debits and credits affect liability accounts?
Liabilities decrease with debits, increase with credits. Normal balance is a credit.
How do debits and credits affect owner’s capital accounts?
Owner’s capital decreases with debits, increases with credits. Normal balance is a credit.
How do debits and credits affect owner’s drawing accounts?
Owner’s drawing increases with debits, decreases with credits. Normal balance is a debit.
How do debits and credits affect revenue accounts?
Revenues decrease with debits, increase with credits. Normal balance is a credit.
How do debits and credits affect expense accounts?
Expenses increase with debits, decrease with credits. Normal balance is a debit.
What are the three basic steps in the recording process?
- Analyze each transaction for its effects on the accounts
- Enter transaction in a journal
- Transfer journal information to ledger accounts (posting)
What is the purpose of the journal in accounting?
The journal is where transactions are initially recorded in chronological order.
What is ‘journalizing’?
The process of entering transaction data into the journal.
What constitutes a complete journal entry?
The date, the accounts to be debited and credited with their amounts, and a brief explanation of the transaction.
What is a compound entry?
A transaction involving three or more accounts recorded with all debits listed before the credits.
What is the role of the general ledger?
It contains all the asset, liability, and owner’s equity accounts.
What is ‘posting’ in accounting?
The transfer of journal entries to the ledger accounts.
What is a trial balance?
A list of accounts and their balances at a given time.
What is the primary purpose of a trial balance?
To prove the equality of the total debit balances and the total credit balances after the journalizing and posting phases.
What limitations does a trial balance have?
It may not uncover all errors, such as a transaction not journalized or a correct journal entry posted twice.
What are some methods to locate errors in a trial balance?
- Re-adding columns
- Checking for amounts in the wrong column
- Looking for transposition errors
What is emphasized in the ‘Feature Story’ section?
The reality of accounting errors and the possibility of human error even with technology.
What does the ‘Sarbanes-Oxley Comes to the Rescue’ section highlight?
The importance of careful recording and internal controls to prevent errors and misstatements.
How does the ‘All About You: Your Personal Annual Report’ section relate to ethics?
It emphasizes the importance of accuracy and ethical behavior in presenting information.
