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Accounting Ch2/3

Terms

QuestionAnswer
Account A record of increases and decreases in a specific asset, liability, equity, revenue or expense item.
Ledger a record containing all accounts used by a company.
Debtors customers and others who owe a company.
Creditors individuals and organizations that have rights to receive payments from a company.
Unearned Revenue a liability that is settled in the futre when a company delivers its products or services.
Source documents identify and describe transactions and events entering the accounting process.
Charts of accounts a list of all ledger accounts and includes an identification number assigned to each account.
Taccount Represents a ledger account and is a tool used to understand the effects of one or more transactions. (Account Title, Debit, Credit)
Debit (DR) left side of Taccount, Increases.
Credit (Cr) right side of Taccount, Decreases.
Account balance the difference between total debits and total credits for an account, including any beginning balance.
General Journal Gives a complete record of each transaction in one place. Every company uses one.
Journalizing The process of recording transactions in a journal.
Balance column accounts Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry.
Compound Journal entry Journal entry that affects at least three accounts.
Debt Ratio Ratio of total liabilities to total assets, used to reflect risk associated with a company’s debts.
Double Entry accounting Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit.
Posting Reference column A column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts.
Trial Balance List of accounts and their balances at a point in time; total debit balances equal total credit balances.
Time period assumption Presumes that an organization's activities can be divided into specific time periods such as a montha three month quarter, a six month interval or a year.
Accounting periods Length of time covered by financial statements.
Annual Financial Statements Reports covering a 1 year period.
Interium Financial Statements covering one, three, or six months of activity.
Fiscal year Any 12 consecutive months.
Natural business year When sales activitites are at lowest level for the year.
Accural basis accounting uses the adjusting process to recognize revenues when earned and expenses when incurred (match with revenues)
Cash Basis accounting Recognizes revenues when cash is received and records expenses when cash is paid.
Expense recognition(Matching Principle) Record expenses in the same accounting period as the revenues that are earned as a result of those expenses.
Adjusting entry Made at the end of an accounting period to reflect a transaction or event that is not yet recorded.
Plant assests Longterm tangible assets used to produce and sell products and services.
Depreciation the process of allocating the costs of theses assets over their expected useful lives.
Straight line depreciation Allocates equal amounts of the assets net cost to depreciation during its useful life.
Contra account an account linked with another account it has an opposite normal balance.
Book Value Assets acquisition costs less its accoumulated depreciation.
Accurred Expenses refer to costs that are incurred in a period but are both unpaid and unrecorded.
Accrued revenues refer to revenues earned in a period that are both unrecorded and not yet recieved in cash or other assets.
Unadjusted trial balance a list of accounts and balances prepared before adjustments are recoreded.
Adjusted trial balance a list of account and balances prepared after adjusting entries have been recorded and posted to the ledger.
Prepaid Expenses Items paid for in advance of receiving their benefits; classified as assets.
Profit Margin Ratio of a company's net income to its net sales; the percent of income in each dollar revenue; also called net profit revenue.
Unearned revenue Liability create when customers pay in advance for products or services; earned when the products or services are later delivered.
Created by: Posiniv01