ACCOUNTING CHAPTER 3
6 steps to prepare the trial balance (KNOW)
1. enter the trial balance heading showing the company name, report title, and closing date for the accounting period 2. list the accounts in the same order as they appear on the financial statements- assets, liabilities, owners equity, revenue, expenses 3. enter the ending balance of each account in the appropriate debit or credit column 4. total the debit column 5. total the credit column 6. compare the total debits with the total credits
credit balance
a condition that occurs when the total of the credits in an account is larger that the total of the debits in that account
debit balance
a condition that occurs when the total of the debits in tan account is larger than the total of the credits in that account
account
a device for recording the changes in the fundamental accounting elements
chart of accounts
a list of the accounts used by a business to record its financial transaction
chart of accounts
a list of the accounts used by a business to record its financial transactions
CLASSIFICATION
a means of identifying each account as an asset, liability or owners equity
double entry accounting/ double entry bookkeeping
a process of recording equal debits and credits for a single business transaction
T accounts
a skeleton form of an account used for instructional purposes
footing/ pencil footing
a total written in small pencil figures under the last entry in a column of an account
trail balance
a work paper proving the equality of the debit and credit balances in the ledger
permanent account
an account that is kept open from one accounting period to the next
temporary account
an account whose balance is transferred to another account at the end of an accounting period
transposition error
an amount written with the digits in incorrect order
credit
an entry on the right side of an account
a chart of accounts shows the account name and the account number (account number is assigned based on the type of account
assets-begin with the number 1 liabilities- begin with the number 2 owners equity- begin with the number 3 revenue- begin with the number 4 expenses- begin with the number 5
CR
the abbreviation for credit
DR
the abbreviation for debit
liability accounts show
the debts of the business
accounting system is called
the double entry system of accounting because each transaction has at least two entries - a debt and a credit
owner equity accounts show
the owners financial interest in the business
asset accounts show
the property a business owns
debit
the left side of a standard account
debt and credit side of a T account
debt is the left side credit is the right side
capital
is an owners equity account