Accounting chapter 2

Trail balance

To prepare a balance sheet this is made where debit balances are indicated in the left column and credit balances are indicated in the right column. Then the two columns are totaled to provide a check on the equality of the debits and credits

chart of accounts

To facilitate the recording of transactions, each company establishes a ______ ___ _______, a list of all account titles and their unique numbers. The accounts are usually organized by financial statement element, with asset accounts listed first, followed by liability, stockholders' equity, revenue, and expense accounts in that orde

monetary unit

Under the _______ _______ assumption, each business entity accounts for and reports its financial results primarily in terms of the national monetary unit (e.g., dollars in the United States, yen in Japan, and euros in Germany), without any adjustment for changes in purchasing power (e.g., inflation)

cost (historical cost)

the cash-equivalent value on the date of the transaction.

transaction

Accounting focuses on certain events that have an economic impact on the entity. Those events that are recorded as part of the accounting process are called this

debits-equal-credits format

After analyzing the business documents (such as purchase invoices, receipts, and cash register tapes) that describe a transaction, the bookkeeper enters the effects on the accounts in the journal using debits and credits. The journal entry, then, is an accounting method for expressing the effects of a transaction on accounts. It is written in a ___________________ _______.

general journal

During the accounting period the effects are recorded first in the ________ _____, a listing in chronological order of each transaction's effects.

general ledger

During the accounting period, to determine account balances, the accounts are updated by posting the effects listed in the general journal to the respective accounts in the ______ ______, a record of effects to and balances of each account

earned capital; retained earnings

Financing Provided by Operations is referred to as ______ ______ or _______ _______. 2 When companies earn profits, they can be distributed to owners as dividends or reinvested in the business. The portion of profits reinvested in the business is called this.

contributed capital

Financing Provided by Owners is referred to as this

separate entity

First we make the _________ _______assumption, which states that each business's activities must be accounted for separately from the activities of its owners, all other persons, and other entities. This means, for example, that, when an owner purchases property for personal use, the property is not an asset of the business.

going concern

Second, under the _______ _________ assumption (also called the continuity assumption), unless there is evidence to the contrary, we assume that the business will continue operating into the foreseeable future, long enough to meet its contractual commitments and plans. This means, for example, that if there was a high likelihood of bankruptcy, then its assets should be valued and reported on the balance sheet as if the company were to be liquidated (that is, discontinued, with all of its assets sold and all debts paid).

Dual Effects

The idea that every transaction has at least two effects on the basic accounting equation is known as the dual effects concept. Most transactions with external parties involve an exchange by which the business entity both receives something and gives up something in return.

transaction analysis

The process for determining the effects of transactions is called this. It is the process of studying a transaction to determine its economic effect on the entity in terms of the accounting equation (also known as the fundamental accounting model)

debit (dr for short)

The term ______ always refers to the left side of the T.

credit (cr for short)

The term ________ always refers to the right side of the T.

Current assets

_______ _________ are those resources that Chipotle will use or turn into cash within one year (the next 12 months). Chipotle's current assets include Cash, Short-Term Investments (in the stocks and bonds of other companies), Accounts Receivable (due from customers and others), Supplies (to make and serve the food), Prepaid Expenses (for rent, insurance, and advertising paid in advance of use), and Others (a summary of several smaller accounts).

Liabilities; creditors

_________ are defined as probable future sacrifices of economic benefits arising from present obligations of a business to transfer cash or other assets or to provide services as a result of past transactions or events. Entities that a company owes money to are called _________.

maturity

liabilities are usually listed on the balance sheet in order of _______ (how soon an obligation is to be paid).

current liabilities

liabilities that Chipotle will need to pay or settle within the coming year (with cash, goods, other current assets, or services) are classified as ______ _______.

liquidity

most companies list assets in order of ________, or how soon an asset is expected by management to be turned into cash or used.