Chapter 2 Recording Business Transactions Flashcards Preview

Principles of Financial Accounting 1 > Chapter 2 Recording Business Transactions > Flashcards

Flashcards in Chapter 2 Recording Business Transactions Deck (32)
Loading flashcards...
1
Q

what is an account?

A

a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period.

2
Q

what are common asset accounts?

A

cash, accounts receivable, notes receivable, prepaid expenses, land, building, furniture

3
Q

what are common liability accounts?

A

accounts payable, notes payable, taxes payable, salaries payable, unearned revenue

4
Q

what are common equity accounts?

A

common stock, dividends, revenues, expenses

5
Q

what is a chart of accounts?

A

lists a company’s accounts along with account numbers

6
Q

what is a ledger?

A

shows the increases and decreases in each account along with their balances

7
Q

what is double-entry accounting?

A

requires transactions to be recorded into at least two accounts.

8
Q

do assets, dividends, and expenses increase with a credit or debit?

A

increase with debit decrease with credit

9
Q

do liabilities, common stock, and revenues increase or decrease with a credit or debit?

A

increase with a credit and decrease with a debit

10
Q

what is the normal balance?

A

the increase side of an account

11
Q

how do you record transactions?

A

source documents provide the evidence data for transactions; they are recorded in the journal and then posted to the ledger.

12
Q

what are the 5 steps to journalizing and posting transactions?

A

Step 1: ID the accounts and the account type
Step 2: Decide if account increases/decreases on DR/CR
Step 3: record the transaction in the journal
step 4: post the journal entry to the ledger
Step 5: determine whether the accounting equation is in balance

13
Q

what is the trial balance?

A

summarizes the ledger by listing all the accounts with their balances; assets, liabilities, then equities. Ensures DR=CR to prepare financial statements

14
Q

how do you use the debt ratio to evaluate business performance?

A

the debt ratio can be used to evaluate a businesses ability to pay its debts; debt ratio = total liabilities / total assets

15
Q

what is an account?

A

a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specified period.

16
Q

what is accrued liability?

A

a liability for which the business knows the amount owed but the bill has not been paid

17
Q

what is a chart of accounts?

A

a list of all of a company’s accounts with their account numbers

18
Q

what is a compound journal entry?

A

a journal entry that is characterized by having multiple debits and/or multiple credits

19
Q

which side of a T account is for Debits and Credits?

A

DR=L

CR=R

20
Q

what is debt ratio?

A

shows the proportion of assets financed with debt. Total liabilities / total assets

21
Q

what is a double-entry system?

A

a system of accounting in which every transaction affects at least two accounts?

22
Q

what is a journal?

A

a record of transactions in date order

23
Q

what is a ledger?

A

the record holding all the accounts of a business, the changes in those accounts, and their balances.

24
Q

what is a normal balance?

A

the balance that appears the increase side of an account

25
Q

what are notes receivable?

A

a written promise that a customer will pay a fixed amount of money and interest by a certain date in the future

26
Q

what are notes payable?

A

a written promise made by the business to pay a debt, usually involving interest, in the future

27
Q

what is posting?

A

transferring data from the journal to the ledger

28
Q

what is a prepaid expense?

A

a payment of an expense in advance

29
Q

what is a source document?

A

provides the evidence and data for accounting transactions

30
Q

what is a T account?

A

a summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits on the right side of the vertical line

31
Q

what is a trial balance?

A

a list of all the ledger accounts with their balances at a point in line

32
Q

what is unearned revenue?

A

a liability created when a business collects cash from customers in advance of providing services or delivering goods