ACC 298--CH. 2 (Intro to Debits and Credits and Journal Entry)

Journal

-Book of original entry -Transactions recorded in chronological order Contributions to recording process: 1. Discloses the complete effects of a transaction 2. Provides a chronological record 3. Helps to prevent or locate errors because debit and credit amounts can easily be compared

Dollar signs

-Do not appear in journals or ledgers -Typically used only in trial balance and financial statements -Show only for the first item in a column and for the total of that column

Limitations of a Trial Balance

1. A transaction is not journalized 2. A correct journal entry is not posted 3. A journal entry is posted twice 4. Incorrect accounts are used in journalizing or posting 5. Offsetting errors are made in recording the amount of a transaction

Recording Process

1. Analyze each transaction in terms of its effect on the accounts. 2. Enter the transaction information in a journal. 3. Transfer the journal information to the appropriate accounts in the ledger.

Debits and Credits

These describe where entries are made in accounts

Journal Entry

This consists of: 1. Date of transaction 2. Account name and explanation 3. Reference # to account (left blank when it is made; it is used later when they are transferred to ledger) 4. Amounts debited and credited

Irregularity

intentional misstatement, which is viewed as unethical.

Credit Normal Balance

liabilities, common stock, retained earnings, revenues have what in common when thinking in terms of debits and credits?

Error

result of an unintentional mistake; it is neither ethical nor unethical

Posting

the procedure of transferring journal entry amounts to the ledger accounts -should be performed in chronological order, which means the company should post all the debits and credits of one journal entry before proceeding to the next journal entry

D

Accounts that are increased with a debit include A revenue. B liability. C equity. D assets.

Parts of an Account

1. Title 2. Debit Side 3. Credit Side

Steps in Posting to ledger

1. in the appropriate columns of the account(s) debited, enter the date, journal page, and debit amount shown in the journal 2. In the ledger, in the appropriate columns of the account(s) credited, enter the date, journal page, and credit amount shown in the journal

D

A T-account A shows the balance after every entry. B is a simplified journal. C lists the credits on the left and the debits on the right. D is balanced by taking the difference between the total credits and total debits.

A

A chart of accounts A lists all accounts utilized by a company. B is another name for the ledger. C cannot be changed. D lists equity accounts first.

B

A credit will increase which account? A Accounts Receivable B Service Revenue C Equipment D Utility Expense

C

A debit is A a decrease to an account. B an increase to an account. C an entry on the left side of an account. D an entry on the right side of an account.

Three-column form of account

A form with columns for debit, credit, and balance amounts in an account which are used in ledgers

Underlining

A single line is placed under the column of figures to be added or subtracted. Final Totals are double underlined

Retained Earnings

An amount earned by a corporation and not yet distributed to stockholders. -net income that is kept in the business

Debit Normal Balance

Assets, dividends, and expenses have what in common when thinking in terms of debits and credits?

A

Dividends are classified as A an equity account. B a liability account. C an asset account. D an expense account.

affect two or more accounts

Each transaction must _________________________________ to keep the basic accounting equation in balance -in other words debits must equal credits; what you do to one side you have to do to the other

Locating Errors

Errors in a trial balance generally result from mathematical mistakes, incorrect postings, or simply transcribing data incorrectly

C

For a firm that pays rent each month, the posting entry would be A credit Cash, credit Rent Expense. B debit Cash, credit Rent Expense. C credit Cash, debit Rent Expense. D debit Cash, debit Rent Expense.

A

If Cash had a beginning balance of $3,000 and the only transactions affecting Cash are Common Stock that is issued for $5,000, and cash is used to purchase equipment for $4,000, then the ending balance in the Cash account is A $4,000. B $2,000. C $3,000. D $1,000.

B

In journalizing a transaction, A indent the title of the debit account. B indent the title of the credit account. C if there are any asset entries, place them first. D place the numeric values in a single column.

B

Irregular entries can often be an indicator of A an incorrect title in an entry. B an unethical misstatement of an entry. C transposition of numbers in an entry. D transactions that occur infrequently.

A

Jenny's Sweets's Accounts Payable balance on the April 30th trial balance is $27,000. On May 30th Jenny paid invoices totaling $10,000 and invoiced customers for a total of $8,000. What is the balance of Jenny's accounts payable account on their May 31st trial balance? A $17,000 B $35,000 C $45,000 D $25,000

B

On the trial balance, accounts are listed A with debit balances listed first. B in the order they appear in the ledger. C in alphabetical order. D in the order they appear in the journal.

C

Suppose a firm uses $18,000 of its cash to pay rent this month. What effect would this have on the Cash and Rent Expense accounts? A It would decrease the Cash account as a debit and decrease the Rent Expense account as a credit. B It would increase the Cash account as a debit and increase the Rent Expense account as a credit. C It would decrease the Cash account as a credit and increase the Rent Expense account as a debit. D It would increase the Cash account as a credit and increase the Rent Expense account as a debit.

True

T/F Debits must equal credits

Common Stock

Term used to describe the total amount paid in by stockholders for the shares they purchase. For example, when an owner invests cash in the business in exchange for shares of the corporation's stock, the company debits (increases) Cash and credits (increases) _______________________

A

The __________ is prepared after using the trial balance. A financial statement B general ledger C journal entry D budget

Ledger

The entire group of accounts maintained by a company is called: -provides the balance in each of the accounts as well as keeps track of changes in these balances -contains all the asset, liability, and stockholders' equity accounts First comes asset accounts, then liability accounts, stockholders' equity, revenues, and expenses

Double Entry System

The equality of debits and credits provides the basis for the ____________________ of recording transactions -Each transaction must affect two or more accounts to keep the basic accounting equation in balance -Recording done by debiting at least one account and crediting at least one other account.

B

The journal A lists credits first for each transaction. B may also be referred to as the book of original entry. C has a separate page for each account. D has a reference number referring to the page, such as J1.

C

When journalizing a transaction, a short explanation may be written A at the bottom of the ledger. B on the line preceding each journal entry. C on the line following each journal entry. D to separate the debit and credit entries.

B

When the trial balance shows that total debits equal total credits, A no errors occurred in the recording process. B it is possible the wrong accounts were used in the journal entry. C no irregularities occurred in the reporting process. D all journal entries must have been posted.

D

When will a debit to Dividends and credit to Cash will be posted? A When the company issues Common Stock to current stockholders. B When the company repurchases Common Stock from current stockholders. C When the company declares a future dividend for stockholders. D When the company pays dividends to stockholders.

D

When writing the title of an account, how is it formatted? Why? A The title is italicized to indicate that it is an account with a debit balance. B The title is italicized to indicate that it is a specific account name. C The title is capitalized to indicate that it is an account with a credit balance. D The title is capitalized to indicate that it is a specific account name.

C

Which of the following activities require a journal entry? A interviewing an applicant for employment B scheduling an appointment with a customer C paying for a service in advance D hiring a new employee

Credit Balance

a condition that occurs when the total of the credits in an account is larger than the total of the debits in that account.

Debit Balance

a condition that occurs when the total of the debits in an account is larger than the total of the credits in that account.

Trial Balance

a list of accounts and their balances at a given time -usually prepared at the end of an accounting period They list accounts in the order in which they appear in the ledger. Debit balances appear in the left column and credit balances in the right column. The totals of the two columns must be equal. *Necessary checkpoint for uncovering errors