ACCOUNTING CHAPTER 3

6 steps to prepare the trial balance (KNOW)

1. enter the trial balance heading showing the company name, report title, and closing date for the accounting period 2. list the accounts in the same order as they appear on the financial statements- assets, liabilities, owners equity, revenue, expenses 3. enter the ending balance of each account in the appropriate debit or credit column 4. total the debit column 5. total the credit column 6. compare the total debits with the total credits

credit balance

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

debit balance

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

account

a device for recording the changes in the fundamental accounting elements

chart of accounts

a list of the accounts used by a business to record its financial transaction

chart of accounts

a list of the accounts used by a business to record its financial transactions

CLASSIFICATION

a means of identifying each account as an asset, liability or owners equity

double entry accounting/ double entry bookkeeping

a process of recording equal debits and credits for a single business transaction

T accounts

a skeleton form of an account used for instructional purposes

footing/ pencil footing

a total written in small pencil figures under the last entry in a column of an account

trail balance

a work paper proving the equality of the debit and credit balances in the ledger

permanent account

an account that is kept open from one accounting period to the next

temporary account

an account whose balance is transferred to another account at the end of an accounting period

transposition error

an amount written with the digits in incorrect order

credit

an entry on the right side of an account

a chart of accounts shows the account name and the account number (account number is assigned based on the type of account

assets-begin with the number 1 liabilities- begin with the number 2 owners equity- begin with the number 3 revenue- begin with the number 4 expenses- begin with the number 5

CR

the abbreviation for credit

DR

the abbreviation for debit

liability accounts show

the debts of the business

accounting system is called

the double entry system of accounting because each transaction has at least two entries - a debt and a credit

owner equity accounts show

the owners financial interest in the business

asset accounts show

the property a business owns

debit

the left side of a standard account

debt and credit side of a T account

debt is the left side credit is the right side

capital

is an owners equity account