CH 2 Analyzing and Recording Transactions

Double-Entry Accounting

-Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit. -Debit must = Credit

chart of accounts

-a list of accounts used by a business with a corresponding account number. -The number of accounts depends upon the company's size, diversity of operations, and industry. -listed in the order in which they appear in the balance sheet and income statement. -A chart of accounts is like a menu. When recording a transaction, the accountant must use an account in the chart of accounts ("you must order from the menu.")

T-Account

-used to depict the effects of 1+ transactions -Debit transactions are recorded on the left. -Credit transactions are recorded on the righ

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

Journalizing Transactions

1. date of transaction 2. titles of affected accounts 3. dollar amount of each debit and credit 4. explanation of transaction

Balance Column Account

Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry.

Accounts Receivable

Amounts to be received in the future due to the sale of goods or services; amount customer owes

General Journal

An all-purpose journal in which all the transactions of a business may be recorded.

Unearned Revenue

The liability created by receiving revenue in advance. Examples: season football ticket revenue collected before season begins, 6 months of rent collected in advances

Equity Accounts

The owner's claim on a company's assets EX owner capital, owner withdrawal, revenue, expense

Trial Balance

a list of ledger accounts and their balances at a given time the purpose of a trial balance is to be sure that the ledger's total debits = total credits BEFORE preparing the financial statements

Note Receivable

a written promise of a customer to pay the business a sum of money at a future date

Prepaid Accounts/Expenses

advance payment for expenses EX prepaid insurance, rent, services(club memberships)

unclassified balance sheet

broadly groups accounts into assets, liabilities, and equity

Liability Accounts

claims by creditors against assets EX accounts payable, notes payable, accrued liabilities, unearned revenue

Accrued Liabilities

expenses that have been incurred but have not been paid at the end of the accounting period EX wages payable, taxes payable, interest payable

Source Documents

identify and describe transactions and events entering the accounting process

Accounts Payable

money owed by a company to its creditors.

Notes Payable

promissory notes in writing owed to others. interest charged

Account

record of increases and decreases in a specific asset, liability, or equity, revenue or expense

Ledger

the group of accounts maintained by a company

debit

the left side of an account increases asset or expense accounts

credit

the right side of an account increases liability or equity accounts