Chapter 2

Ledger

A group of accounts for a business entity.

Account

Accounting systems are designed to show the increases and decreases in each accounting equation element as a separate record. This record is called an ________.

Horizontal Analysis

Amount of each item on a current financial statement is compared with the same item on an earlier statement.

Balance Sheet Accounts

Assets (debit for increases, credit for decreases); Liabilities (debit for decreases, credit for increases); Stockholders' Equity (debit for decreases, credit for increases)

Liabilities

Debts owed to outsiders (creditors). Examples: Accounts payable, notes payable, wages payable, interest payable.

Dividends

Distribution of earning to stockholders.

Dividends

Dividends (debit for increases, credit for decreases)

Normal Balance of Account

Either a debit or a credit depending on whether increases in the account are recorded as debits or credits.

Journal Entry

Entry in the journal.

Correcting journal entry

If an error has already been journalized and posted to the ledger, a _________________ is normally prepared.

Revenue

Increases in stockholders' equity as a result of selling services or products to customers. Some examples: fees earned, commission revenue, rent revenue.

Unearned Revenue

Liability created by receiving the cash in advance of providing the service.

Chart of Accounts

List of the accounts in the ledger.

Journalizing

Process of recording a transaction in the journal.

Posting

Process of transferring the debits and credits from the journal entries to the accounts.

Journal

Record where a transaction is initially recorded.

Double-Entry Accounting System

Requires: Every business transaction be recorded in at least two accounts; the total debits recorded for each transaction to be equal to the total credits recorded.

Assets

Resources owned by the business. Examples : Cash, supplies, accounts receivable, buildings, copyrights, trademarks.

Income Statement Accounts

Revenue Accounts (debit for decreases, credit for increases); Expense Accounts (debit for increases, credit for decreases)

Journalizing steps

Step 1. The date of the transaction is entered in the Date column Step 2. The title of the account to be debited is recorded at the left-hand margin under the Description column, and the amount to be debited is entered in the Debit column. Step 3. The title of the account to be credited is listed below and to the right of the debited account title, and the amount to be credited is entered in the Credit column. Step 4. A brief description may be entered below the credited account Step 5. The Posting Reference column is left blank when the journal entry is initially recorded. This column is later used when the journal entry amounts are transferred to accounts in the ledger.

Posting steps

Step 1. The date of the transaction is entered in the Date column Step 2. The amount is entered in the Debit column Step 3. The journal page number is entered in the account's Posting Reference column Step 4. The ledger account number is entered in the journals Posting Reference column

Stockholders' equity

Stockholders' right to the assets of the business after all liabilities have been paid.

Slide

The entire number is moved one or more spaces to the right or left by mistake.

Trial Balance

The equality of debits and credits in the ledger should be proved at the end of each accounting period by preparing a ______________.

Debit

The left side of the T Account is the _______ side.

Transposition

The order of digits changed by mistake.

Credit

The right side of the T Account is the _______ side.

Expenses

Using of assets or consuming services in the process of generating revenues. Some examples: wages expense, rent expense, misc. expense.