Chapter 2 - ACTG 2200

Journal

- A chronological record of all economic events affecting a firm. - The purpose of a journal is to record a chronological listing of every transaction for a company. - Transactions are recorded using debits and credits

General Ledger

- Contains all of the accounts of the company. - The purpose of a general ledger is to provide in a single location the list of transactions affecting each account and the account's balance. - A transaction is initially recorded in the journal, and then subsequently posted to the general ledger. - Contains a list of transactions affecting each account and the account's balance

Ledger

- Contains all the individual accounts used by a company. - Includes the list of transactions affecting each individual account and the account's balance

Account

- Maintained for each financial statement item the account title. - The type of information included in an account includes: columns for debits and credits. - All transactions related to a particular item over a period of time are summarized in an account

Posting

- The process of transferring information from the journal to the ledger. - The process of transferring information from a journal entry to the specific accounts affected in the general ledger.

The two roles of financial accounting are to:

- communicate information to external parties for decision making purposes. - measure business activities of the company. - The two functions of financial accounting are to measure business activities and communicate those measurements to external parties for decision-making purposes.

Trial Balance

- listing of account balances at the balance sheet date - a list of all accounts and their balances showing debits equals credits.

Balance Sheet

- one of the financial statements - presents assets, liabilities, and stockholders' equity.

Measurement process of external transactions

1.) Use source documents to identify accounts affected by an external transaction. 2.) Analyze the impact of the transaction on the accounting equation. 3.) Assess whether the impact of the transaction results in a debit or credit to account balance. 4.) Record transaction using debits and credits. 5.) Post the transaction to the T-accounts in the general ledger. 6.) Prepare a trial balance.

Chart of Accounts

A list of all account names used to record transactions of a company

External Transactions

A transaction the firm conducts with a separate economic entity.

Computerized System vs. Manual System

Computerized System: Journal entries are instantly posted to the general ledger Manual System: Journal entries are posted periodically to the general ledger

External Transaction

Involves an exchange between the company and a separate economic entity.

Which type of account is increased with a credit?

Revenue

What are the three components of retained earnings?

Revenues, expenses, and dividends

Stockholders' Equity

Stockholder equity accounts: - common stock - retained earnings

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

common stock.

Shannon Corporation issues common stock for $25,000. Recording this transaction will include a

credit to common stock.

In a double-entry accounting system, the ___________ represents the left side of the account.

debits

An account should have an account title, account number, a place for the date of the transaction, and two columns for

debits and credits.

Credits increase revenues, whereas debits increase

expenses and dividends.

Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick:

issued shares to stockholders.

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

Consistent with the __________ recognition principle, companies record revenue at the time goods are provided to customers.

revenue