Chapter 2 Accounting

What is a trial balance? What is its purpose?

A trial balance is a listing of the ledger accounts with their individual balances. The purpose of the trail balance is to determine whether the ledger is in balance.

What of the following types of account normally have debit balances? a. assets b. liabilities c. net assets d. revenues e. expenses

Assets and expense accounts normally have debit balances.

What are compound entries?

Compound entries are entries having more than one debit and/or credit.

"In accounting, debits represent something "bad" (undesirable), whereas credits represent something "good" (desirable)." Do you agree or disagree? Explain your answer

Disagree. Debits are increases to assets and expenses. An increase to assets is a good thing. Any other debit is actually a decrease (to liabilities or net assets or revenues). Credits are decreases to assets and expenses and are increases to liabilities, net assets, and revenues.

What is the purpose of a closing entry?

The purpose of a closing entry is to eliminate the balances of revenues and expenses and records the excess of revenues over expenses for the period in the hospital net assets accounts.

Define the term credit

The term credit means an entry or balance on the right-hand side of an accounting record

Define the term debit

The term debit means an entry or balance on the left-hand side of an accounting record.

State the rules of debit and credit with respect to asset and expense accounts

With respect to asset and expense accounts, debit to increase and credit to decrease

State the rules of debit and credit with respect to liability, net assets, and revenue accounts.

With respect to liability, net assets, and revenue accounts, credit to increase and debit to decrease.

Indicate briefly the need for documentary evidence in accounting. Give five examples of documentary evidence used in hospital accounting

because in creating records of business transactions, accountants must first be made aware that transactions have occurred. A system must be devised to document all business transactions as they occur, or at the earliest practicable point after that occurrence. It is of critical importance that no transaction be overlooked and go unrecorded. A failure to recognize and record all transactions results in lost revenues and incomplete financial information. Examples include the following: • Purchase requisitions • Purchase orders • Receiving reports • Invoices • Checks written and checks received