Chapter 2: The Recording Process

Dividend

A distribution by a corporation to its stockholders on a pro rata (equal) basis.

Three-column form of account

A form with columns for debit, credit, and balance amounts in an account.

Simple Entry

A journal entry that involves only two accounts.

Compound Entry

A journal entry that involves three or more accounts.

General Ledger

A ledger that contains all asset, liability, and stockholders' equity accounts.

Chart of Accounts

A list of accounts and the account numbers that identify their location in the ledger.

Trial Balance

A list of accounts and their balances at a given time.

Account

A record of increases and decreases in specific asset, liability, or stockholders' equity items.

Double-entry system

A system that records in appropriate accounts the dual effect of each transaction.

T-Account

The basic form of an account

Normal Balance

An account balance on the side where an increase in the account is recorded.

Journal

An accounting record in which transactions are initially recorded in chronological order.

Recording Process

Analyzing transactions, entering transactions in a journal, and posting transactions

Expanded Accounting Balance Equation

Assets = Liabilities + Common Stock + Retained Earnings + Revenues - Expenses - Dividends

Common Stock

Issued in exchange for the owners' investment paid in to corporation.

Retained Earnings

Net income that is kept (retained) in the business.

Journalizing

The entering of transaction data in the journal.

Ledger

The entire group of accounts maintained by a company. Accounts in ledger are assets, liabilities ,common stock, dividends, revenues, and expenses

Debit

The left side of an account. Accounts that have normal debit balances are dividends, assets, and expenses

General Journal

The most basic form of journal. Provides chronological record of transactions Helps locate errors because the debit and credit amounts foe each entry can be readily compared

Posting

The procedure of transferring journal entries to the ledger accounts.

Credit

The right side of an account.