Ch. 2 Analyzing Transactions

Chart of Accounts

1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 2. Liabilities 21 Accounts Payable 23 Unearned Revenue 3. Owner's Equity 31 Chris Clark, Capital 32 Chris Clark, Drawing 4. Revenue 41 Fees Earned 5. Expenses 51 Wages Expense 52 Supplies Expense 53 Rent Expense 54 Utilities Expense 59 Miscellaneous Expense

Chart of Accounts

A list of accounts in the ledger.

Account

Accounting systems are designed to show the increases and decreases in each accounting equation element as a separate record. An _________ has three parts: - A title, which is the name of the accounting equation element recorded in the account. - A space for recording increases in the amount of the element. - A space for recording decreases in the amount of the element.

Ledger

Agroup of accounts for business entity.

Liabilities

Are debts owed to outsiders (creditors). Examples include accounts payable, notes payable, and wages payable.

Revenues

Are increases in assets and owner's equity as a result of selling services or products to customers. Examples include fees earned, fares earned, commissions revenue, and rent revenue.

Balance Sheet Accounts

Assets (Debit + and Credit -) = Liabilities (Debit + and Credit -) + Owner's Equity (Debit - and Credit +)

Credit

Decreases in assets are recorded on the right side of an account.

Owner's Withdrawals

Drawing Account (Debit + and Credit -)

Debit

Increases in assets are recorded on the left side of an account.

Normal Balance

Is either a debit or credit depending on whether increases in the account are recorded as debits or credits (look at Exhibit 3 on page 56).

Transposition

Occurs when the order of the digits is copied incorrectly, such as writing $542 as $452 or $542.

Trial Balance

One way to detect such errors is by preparing a _______________. The steps in preparing a _________________: Step 1. List the name of the company, the title of the ________________, and the date it is prepared. Step 2. List the accounts from the ledger, and enter their debit or credit balance in the Debit or Credit column of the trial balance. Step 3. Total the Debit and Credit columns of the trial balance. Step 4. Verify that the total of the Debit column equals the total of the Credit column.

Drawing

Represents the amount of withdrawals made by the owner.

Assets

Resources owned by the business entity. It also includes account receivable, prepaid (such as insurance), buildings, equipment, and land.

Expenses

Result from using up assets or consuming services in the process of generating revenues. Examples include wages expense, rent expense, utilities expense, supplies expense, and miscellaneous expense.

Income Statements Accounts

Revenue Accounts (Debit - and Credit +) Expense Accounts (Debit + and Credit -)

Exercise 2-1 Rules of Debit and Credit and Normal Balances

State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance. 1. Amber Saunders, Drawing A. Debit entries only; normal debit balance. 2. Account Payable A. Debit and credit entries; normal credit balance. 3. Cash A. Debit and credit entries; normal debit balance. 4. Fees Earned A. Credit entries only; normal credit balance. 5. Supplies A. Debit and credit entries; normal debit balance. 6. Utilities Expense A. Debit entries only; normal debit balance.

Slide

The entire number is coped incorrectly one or more spaces to the right or the left, such as writing $542.00 as $54.20 or $5420.00

Journal Entry

The entry in the journal.

Balance of the Account

The excess of the debits of an asset account over its credits.

T Account

The left side of the account is called the debit side, and the right side is called the credit side.

Unearned Revenue

The liability created by receiving the cash in advance of providing the service.

Capital Account

The owner's equity is represented by the balance of the owner's __________________________.

Owner's Equity

The owner's right to the assets of the business after all liabilities have been paid.

Journalizing

The process of recording a transaction in the journal.

Posting

The process of transferring the debits and credits from the journal entries to the accounts.

Double-Entry Accounting System

This system is based on the accounting equation and requires: - Every business transaction to be recorded in at least two accounts. - The total debits recorded for each transaction to be equal to the total credits recorded. It also has specific rules of debit and credit for recording transactions in the accounts.