Accounting Chapter 2: Business Transactions

A chronological record of business transactions. Think of it as a diary of every financial event that happens.

A collection of all the accounts used by a company, organized by type (assets, liabilities, etc.) and assigned unique numbers. Imagine it's like a library catalogue for all the company's financial records.

A list of all the accounts in the ledger with their current balances. It's like a snapshot of the company's financial health at a specific point in time.

A system of recording changes in assets, liabilities, and owner's equity using debits and credits. Think of it as the language used to communicate financial information.

An increase in assets, a decrease in liabilities, or a decrease in owner's equity. Think of it as adding something to your side of the equation.

A decrease in assets, an increase in liabilities or an increase in owner's equity. Think of it as taking something away from your side of the equation.

A detailed record of increases and decreases for a specific account. Think of it as a separate file for each account, like a file folder for every transaction.

The process of transferring data from the journal to the ledger. Think of it as transferring the information from the diary to the separate file folders.

A system that records every business transaction with two equal and opposite entries, one debit and one credit.

A shorthand way of showing the effect of transactions on an account. It uses the left side for debits (Dr) and the right side for credits (Cr).

A financial statement showing a company's financial position at a specific point in time. It includes assets, liabilities, and owner's equity.

Anything owned by a business that has value and can be converted into cash.

Obligations a business owes to others (money owed to lenders or suppliers).

The owner's stake in the business. It includes the initial investment and any retained earnings.

An accounting rule that says that increases in assets are recorded on the debit side and decreases on the credit side. Conversely, increases in liabilities and owner's equity are recorded on the credit side and decreases on the debit side.

An investment by the owner into the business. It increases both cash and owner's equity.

The starting point for recording financial data, these documents provide evidence of transactions.

A document that shows the amount of money a business received and deposited in a bank.

A document that tells the business how much to pay a vendor and when the payment is due.

A chronological record of a business's transactions.

The process of recording transactions in the journal with an explanation.

The process of transferring data from the journal to the ledger, where each account has its own record.

Used to track all transactions related to a specific account.

A simplified representation of a ledger, used to track the balance of an account.

The accounting equation shows the relationship between a company's assets, liabilities and owner's equity. It is based on the principle that assets are equal to the sum of liabilities and owner's equity.

A debit increases the balance of asset, expense and withdrawal accounts, while a credit decreases them.

A credit increases the balance of liability, owner's equity and revenue accounts, while a debit decreases them.

The normal balance of an account is the side where increases are recorded.

Asset accounts normally have a debit balance. Liabilities normally have a credit balance. Owner's equity normally has a credit balance. Revenue normally has a credit balance. Expenses normally have a debit balance. Withdrawals normally have a debit balance.

A journal is a chronological record of business transactions. It is used to record business transactions in the order they occur.

The general ledger is a collection of all the accounts used by a business. Each account represents a specific asset, liability, owner's equity, revenue, or expense.

A chart of accounts is a list of all the accounts used by a business. It provides a framework for organizing and tracking financial data.

A summary of all accounts and their balances, organized by asset, liability, equity, revenue, and expense. It helps ensure total debits equal total credits but doesn't show a company's overall financial health like a balance sheet.

A standard method for verifying accuracy in bookkeeping, especially before computers. It involves comparing the total debits and credits to ensure they are equal. It's still useful for summarizing all accounts.

Errors that occur when a number is accidentally transposed (e.g., writing $16 instead of $61). These lead to a difference that's divisible by 9.

Errors that can be found by dividing the difference between total debits and total credits by 2. The difference is doubled because the incorrect entry was both a debit and a credit.