Accounting 1123

QC: For each transaction, double-entry accounting requires what?

10.

QC: Describe a chart of accounts

A chart of accounts is a list of all of a company's accounts and their identification numbers

Posting reference column

A column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts

QC: What determines the number and types of accounts a company uses?

A company's size and diversity affect the number of accounts in its accounting system. The types of accounts depend on information the company needs to both effectively operate and report its activities in financial statements.

QC: Explain what a compound journal entry is

A compound journal entry affects three or more accounts

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

Double-entry accounting

Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit

General journal

All-purpose journal for recording the debits and credits of transactions and events

QC: What is an account? What is a ledger?

An account is a record in an accounting system that records and stores the increase and decreases in a specific asset, liability, equity, revenue or expense. The Ledger is a collection of all the accounts of a company.

QC: Describe the link between the income statement and the statement of retained earnings.

An income statement reports a company's revenues and expenses along with the resulting net income or loss. A statement of retained earnings reports changes in retained earnings, including that from net income or loss. Both statements report transactions occurring over a period of time.

QC: Identify each of the following as either an asset, liability, or equity: Prepaid Rent Unearned Fees Building Wages Payable Office Supplies

Assets Prepaid rent Building Office Supplies Liabilites Unearned Fees Wages Payable Equity

QC: Define and describe assets, liabilities and equity.

Assets are the resources a business owns or controls that carry expected future benefits. Liabilities are the obligations of a business, representing the claims of others against the assets of a business. Equity reflects the owner's claims on the assets of the business after deducting liabilities.

QC: Where are dollar signs typically entered in financial statements?

At a minimum, dollar signs are placed beside the first and last numbers in a column. It is also common to place dollar signs beside any amount that appears after a ruled line to indicate that an addition or subtractions has occurred.

QC: An owner invests $15,000 cash along with equipment having a market value of $23,000 in a company in exchange in exchange for common stock. Prepare the necessary journal entry.

Cash 15,000 Equipment 23,000 Common Stock 38,000 Investment by owner of cash and equipment

Account Balance

Difference between total debits and total credits (including the beginning balance) for an account

QC: What types of transactions increase equity? What types decrease equity?

Equity is increased by revenues and by owner investments. Equity is decreased by expenses and dividends.

QC: Identify examples of accounting source documents

Examples of source documents are sales tickets, checks, purchase orders, charges to customers, bills from suppliers, employee earnings records, and bank statements

Creditors

Individuals or organizations entitled to receive payments

Compound journal entry

Journal entry that affects at least three accounts

Unearned revenue

Liability created when customers pay in advance for products or services; earned when the products or services are later delivered

Trial Balance

List of accounts and their balances at a point in time; total debit balances equal total credit balances

Chart of accounts

List of accounts used by a company; includes an identification number for each account

QC: Does debit always mean increase and credit always mean decrease?

No. Debit and credit both can mean increase and decrease.

QC: Why are posting reference numbers in the journal when entries are posted to ledger accounts?

Posting reference numbers are entered in the journal when posting to the ledger as a cross-reference that allows the record keeper or auditor to trace debits and credits from one record to another.

Journalizing

Process of recording transactions in a journal

Posting

Process of transferring journal entry information to the ledger; computerized systems automate this process

Debt Ratio

Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts

General ledger

Record containing all accounts (with amounts) for a business

Journal

Record in which transactions are entered before they are posted to ledger accounts

Account

Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue or expense.

Debit

Recorded on the left side; an entry that increases asset and expense accounts, and decreases liability, revenue and most equity accounts; abbreviated Dr

Credit

Recorded on the right side; an entry that decreases asset and expense accounts, and increases liability, revenue and most equity accounts; abbreviated Cr

QC: Define and describe revenues and expenses.

Revenues are inflows of assets in exchange for products or services to customers as part of the main operations of a business. Expenses are outflows or the using up of assets that result from providing products or services to customers.

QC: Explain the importance of source documents

Source documents serve many purposes, including record keeping and internal control. Source documents, especially if obtained from outside organization, provide objective and reliable evidence about transactions and their amounts.

Source document

Source of information for accounting entries that can be in either paper or electronic form

QC: If a $4,000 debit to Equipment in a journal entry is incorrectly posted to the ledger as a $4,000 credit, and the ledger account has a resulting debit balance of $20,000, what is the effect of this error on the Trial Balance column totals?

The Equipment account balance is incorrectly reported at $20,000 -- it should be $28,000. The effect of this error understates the trial balance's Debit column total by $8,000. The results in an $8,000 difference between the column totals.

QC: Explain the link between the balance sheet and the statement of retained earnings.

The balance sheet describes a company's financial position (assets, liabilities, and equity) at a point in time. The retained earnings amount in the balance sheet is obtained from the statement of retained earnings.

QC: Why are accounting systems called double-entry?

The name double-entry is used because all transactions affect at least two accounts. There must be at least one debit in one account and at least one credit in another account.

T-accounts

Tool used to show the effects of transactions and events on individual accounts

Dividends

corporation's distributions of assets to its owners