Accounting Chapter 2

Journal

Gives a complete record of each transaction in one place. It also shows debits and credits for each transaction.

Accounts Receivable

Held by seller and refers to a promise of payment by the customer. Also called credit sales.

Dividends

Are not expenses of the business, they are simply the opposite of owner investments. It decreases both the company's assets and its total equity.

Analyzing and Recording Process

(1) Analyze each transaction and event from source documents. (2) Record relevant transactions and events in a journal. (3) Post journal information to ledger accounts. (4) Prepare and Analyze the trial balance.

Bank Statement

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Income Statement

An income statement reports the revenues earned less the expenses incurred by a business over a period of time. Ex. Rent Expense, salaries expense, utilities expense, rental revenues, total revenues.

Creditors

Are individuals and organizations that have rights to receive payments from a company. If a company fails to pay its obligations, the law gives creditors a right to force the sale of that company's assets to obtain the money to meet creditors' claims. Creditors are then paid only up to the amount they are owed, any residual money goes to the owners.

Source Document

Identify and describe transactions and events entering the accounting process. They are the sources of accounting information and can be in either hard copy or electronic form. Ex. sales tickets, checks, purchase orders, bills from suppliers, employee earnings records, and bank statements, telephone bill.

Revenue

Increase equity. Ex. Sales, Commissions Earned, Professional Fees Earned, Rent Revenue and Interest Revenue.

Trial Balance

Is a list of accounts and their balances at a point in time.

General Journal

It can be used to record any transaction and includes the following about each: (A) date of transaction (b) titles of affected accounts (c) $ amount of each debit and credit (d) explanation of the transaction.

Debit

Left side of an account; abbreviated Dr

Liability Accounts

Liabilities are claims (by creditors) against assets, which means they are obligations to transfer assets or provide products or services to others.

Chart of Accounts

List of ledger accounts and includes an identifications number assigned to each account.

Accounts Payable

Oral or implied promises to pay later

Equity Account

Owner's claim on a company's asset is called equity. Equity is the owner's residual interest in a business after deducting liabilities. Equity is impacted by four types of accounts: common stocks, dividends, revenues, and expenses.

Note Receivable

Promissory note, is a written promise of another entity to pay a definite sum of money on a specified date.

General Ledger

Record containing all accounts used by a company

Note Payable

Refers to a formal promise, usually denoted by the signing of a promissory note, to pay a future amount.

Unearned Revenue

Refers to a liability that is settled in the future when a company delivers its products or services.

Retained Earnings

Reports info about how retained earnings changed over the reporting period. Ex. Net income - Cash Dividends

Balance Sheet

Reports the financial position of a company at a point in time usually at the end of a month, quarter, or year. Ex. Cash, Supplies, Prepaid insurance, Equipment, Accounts payable, Unearned Revenue, Total Liabilities, Common stock, retained earnings.

T-account

Represents a ledger account and is a tool used to understand the effects of one or more transactions.

Double-Entry Accounting

Requires at least three things from each transaction: (1) at least two accounts are involved, with at least one debit and one credit. (2) Total amount debited must equal total amount credited. (3) Accounting equation must not be violated.

Asset Accounts

Resources owned or controlled by a company, and those resources have expected future benefits. Usually separate their asset accounts into: cash account, accounts receivable, note receivable, prepaid accounts, supplies, equipment, and buildings and land.

Credit

Right side of an account; abbreviated Cr^2.

Common Stock

When an owner invests in a company in exchange for common stock, the invested amount is recorded in account titled Common Stock.