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accounting ch 2


Common Asset Accounts Cash, Accounts receivable (owed to us by customers),prepaid asstes (services paid for but not used yet),supplies,inventories(goods purchased to sell),equipment,buildings,land,intangible assets(patents, copyrights)
Common Liability Accounts Accounts Payable (amounts due to suppliers), notes payable (debts to lenders), unearned revenue(money collected for services we haven't provided),accrued liabilities (amounts owed for services), wages payable, taxes payable, interest payable
Equity Accounts Invested equity:(contributed or paid-in capital) common stock. Earned equity:(not distributed to owners)retained earnings.Dividends, Revenues,Expenses
Rules to memorize 1.For every transaction/entry: Debits=Credits 2.For every transaction/entry: A=L+OE(owners equity) 3. DEBIT means LEFT SIDE 4. CREDIT means RIGHT SIDE 5. Assets are increased by debit(left side) 6. Liabilities/equity increased by credit (right side)
Debit/Credit rule for Equity equity= invested captial + retained earnings. Retained Earnings =revenues-expenses-dividends -Revenues increase equity, while expenses decrease equity -Equity increased by credit entries, decreased by debit entries
What are revenues recorded as? credits- right side
What are expenses recorded as? debit- left side
Ledger groups events by account affected rather than by transaction(journal entry). T-accounts are a simple ledger
The Chart of Accounts is a list of all ledger accounts and includes an identification number assigned to each account
T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. The left side is Debit (Dr.) and the right side is Credit (Cr.)
Account Balance the difference between total debits and total credits for an account, including any beginning balance
Double-entry Accounting requires that for each transaction: at least two accounts are involved, with at least one debit and one credit. The total amount debited, must equal the total amount credited. The accounting equation must not be violated
Debit and Credit affects regarding Assets debit-> left side, increase and normal balance credit-> right side, decreases
Debit and Credit affects regarding Liabilities Debit-> left side, decreases credit-> right side, increase and normal balance
Debit and Credit affects regarding Equity Debit-> left side, decreases Credit-> right side, increase and normal balance
Debit and Credit affects of common stock debit-> left side, decreases credit-> right side, increases, normal balance
debit and credit affects of dividends debit-> left side, increases and normal balance credit-> right side, decreases
debit and credit affects of revenues debit-> left side, decreases credit-> right side, increases, normal balances
debit and credit affects or expenses debit->left side,increases, normal balance credit-> right side, decreases
General Journal Transaction (1)date of transaction, (2) titles of affected accounts, (3)dollar amount of each debit and credit, (4)explanation of transaction
Trial Balance a list of all the accounts organized into debit and credit columns. Total Debits = Total Credits. Trial balance is not a balance sheet, it lists all the accounts
Preparing a Trial Balance- 3 steps (1)list each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in its normal balance column. (2)compute the total of debit/credit balances.(3)verify total debit/credit balances equal
Debt Ratio =Total Liabilities/Total assets measures the risk of capital structure and it is a 0-1 scale, the higher the riskier
Created by: asitov
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