Chapter 2 - The Accounting Cycle: During the Period

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Account

a record summarizing all the information pertaining to a single item in the accounting equation

General Ledger

each account with it's individual transactions and resulting account balance

Journal Entry

Debits = Credits

Liability Accounts

accounts payable, notes payable, accrued liabilities, unearned revenue

Expenses

- Decrease Retained Earnings - Debit Account - Increase with a debit

Revenues

- Increase Retained Earnings - Credit Account - Increase with a credit

Posting

transferring information from a journal entry to a general ledger

Provide Services on Account

- Asset (accounts receivable) increases - Stockholders Equity (service revenue) increases

Pay Salaries to Employees

- Asset (cash) decreases - Stockholder's Equity decreases

Pay Cash Dividends

- Asset (cash) decreases - Stockholder's Equity decreases - Dividends increase

Provide Services for Cash

- Asset (cash) increases - Stockholder's Equity (service revenue) increases

Receive Cash in Advance

- Asset (cash) increases - Liability (deferred revenue) increases

Pay Rent in Advance

- Asset (prepaid rent) increases - Asset (cash) decreases

Purchase Supplies on Account

- Asset (supplies) increases - Liability (accounts payable) increases

Purchase of Equipment

- Assets (equipment) increases - Cash decreases These cancel out in accounting equation

Issue Common Stock

- Cash increases - Common stock increases

Borrowing Cash from Bank

- Cash increases -Notes Payable/Liabilities increases

- Increase in Liabilities and Stockholder's Equity - Decrease in Libilities and Stockholder's Equity

- Credit - Debit

- Increases in Assets (left-hand side accounts) - Decrease in Assets

- Debit - Credit

Issue Common Stock DC

- Debit Cash +A - Credit Common Stock +SE

Receive Cash in Advance DC

- Debit Cash +A - Credit Deferred Revenue +L

Provide Services for Cash DC

- Debit Cash +A - Credit Service Revenue +R, +SE

Provide Services on Account DC

- Debit Cash +A - Credit Service Revenue +R, +SE

Pay Cash Dividends to Stockholders

- Debit Dividends +D, -SE - Credit Cash -A

Purchase Equipment DC

- Debit Equipment +A - Credit Cash -A

Pay for Rent in Advance DC

- Debit Prepaid Rent +A - Credit Cash -A

Pay Salaries to employees DC

- Debit Salaries Expense +E, -SE - Credit Cash -A

Purchase Supplies on Account

- Debit Supplies +A - Credit Accounts Payable +L

Borrow Cash from Bank DC

- Debit cash +A - Credit Notes Payable +L

Dividends

- Decrease Retained Earnings - Debit Account - Increase with a debit

steps to measuring external transactions

1. identify accounts affected 2. how does it impact the accounting equation 3. debit or credit? 4. record in journal 5. post to general ledger 6. trial balance

Journal

A form for recording transactions in chronological order

T-Account

An accounting device used to analyze transactions

Revenue Recognition Principle

Companies recognize revenue at the tie they provide goods and services to customers.

How do dividends affect retained earnings?

Dividends reduce retained earnings, but they are not an expense.

how do expenses affect retained earnings?

Expenses reduce net income and therefore reduce the amount of retained earnings

Accounting Cycle

The series of accounting activities - Measuring Business activities - Communicating those measurements to external parties

External Transactions

Transaction between a company and separate economic entity

Asset Accounts

cash, accounts receivable, notes receivable, prepaid accounts, supplies, equipment, buildings, land

Stockholders' Equity Accounts

common stock and retained earnings

Trial Balance

list of all accounts and their balances at a PARTICULAR date, showing that total debits = total credits


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