Accounting Chapter 2

How do you record transactions using journal entries?

The entry that records a transaction has a place for the date of the transaction, the relevant account names, debit amounts, credit amounts, and a description of the transaction

What is the purpose of the journal and its relationship to the ledger?

•A journal provides a chronological record of all transactions affecting a firm •To make the calculation of account balances more efficient, we need to collect all transactions affecting an account in one location. We do this through a process called posting. Formally, posting is the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

What does the term normal balance mean?

•The debit or credit balance that would be expected in a specific account in the general ledger •For example, asset accounts and expense accounts normally have debit balances. Revenues, liabilities, and stockholders' equity accounts normally have credit balances

What is the double-entry system of accounting?

•The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more) •Double entry also allows for the accounting equation (assets = liabilities + owner's equity) to always be in balance

What accounts have a normal credit balance?

•accounts payable (liability) •retained earnings (stockholders equity) •deferred revenue (liability) •service revenue (revenue) •utilities payable (liability)

What are the steps in the accounting cycle?

•identifying and analyzing business transactions •journal entries •posting to the ledger •unadjusted trial balance •adjusting entries •adjusted trial balance •financial statements •closing entries •post closing trial balance

What accounts have a normal debit balance?

•supplies (asset) •advertising expense (expense) •prepaid insurance (asset) •supplies expense (expense) •equipment (asset) •dividends (dividends) •accounts receivable (asset)