Questions and Answers
Which of the following is classified as an Asset Account?
Which option is NOT a Liability Account?
Which of these accounts is classified under Equity Accounts?
What is a Chart of Accounts?
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What does a T-account represent?
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What is an Account Balance?
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What is Double Entry Accounting?
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What do Increases and Decreases refer to in accounting?
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What is a Journal in accounting?
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List the components necessary when Journalizing a Transaction.
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What is involved in Analyzing Transactions?
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What is the journal entry for receiving an investment by the owner?
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What is the journal entry for purchasing supplies by cash?
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What is the accounting entry made when purchasing equipment for cash?
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What is the entry for providing services for cash?
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What is the journal entry for the payment of cash dividends?
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What is a Trial Balance?
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What is involved in Preparing a Trial Balance?
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Study Notes
Asset Accounts
- Represent resources owned by a business that provide future economic benefits.
- Examples include Cash, Supplies, Accounts Receivable, Equipment, Note Receivable, Building Accounts, Prepaid Accounts, and Land.
Liability Accounts
- Obligations or debts that a company owes to outside parties.
- Common types include Accounts Payable, Note Payable, Unearned Revenue, and Accrued Liabilities.
Equity Accounts
- Measure the ownership interest in a company.
- Key components are Common Stock, Dividends, Revenue Accounts, and Expense Accounts.
Chart of Accounts
- A comprehensive list of all ledger accounts, each assigned a unique identification number for easy reference.
T-account
- A visual representation of a ledger account, structured like the letter "T", used to analyze the impact of transactions.
Account Balance
- Calculated as the difference between total debits and total credits for an account along with its starting balance.
- A debit balance occurs when total debits exceed total credits, while a credit balance is the opposite.
Double Entry Accounting
- Requires at least two accounts to be affected by each transaction, ensuring that total debits equal total credits.
- Maintains the integrity of the accounting equation: Assets = Liabilities + Equity.
Increases and Decreases
- Assets have a normal balance on the left (debit) side; Liabilities and Equity have a normal balance on the right (credit) side.
- Equity increases with revenues and stock issuances; decreases with expenses and dividends.
Journal
- A systematic record of every transaction, showing corresponding debits and credits.
- The process of recording these transactions is known as journalizing.
Journalizing Transactions
- Requires documentation of each transaction's date, affected account titles, debit and credit amounts, and an explanation.
Analyzing Transactions
- Involves identifying the transaction, referencing source documents, applying the accounting equation, recording in journal entry form with double entry, and posting entries.
Receive Investment by Owner
- Recorded with a debit to Cash and a credit to Common Stock to reflect an owner's equity contribution.
Purchase Supplies by Cash
- Involves a debit to Supplies and a credit to Cash, indicating an increase in assets and a decrease in cash.
Purchase Equipment for Cash
- Involves debiting Equipment and crediting Cash, resulting in an asset acquisition without impacting total assets.
Purchase Supplies on Credit
- Recorded as a debit to Supplies and a credit to Accounts Payable; accounts payable indicates a liability to be settled later.
Provide Services for Cash
- Impacted by debiting Cash and crediting Consulting Revenue, indicating income earned immediately upon service provision.
Payment of Expense for Cash
- Registered with a debit to Expense and a credit to Cash, reflecting an expense incurred and cash outflow.
Providing Consulting and Rental Services on Credit
- Debits Accounts Receivable and credits Consulting Revenue, indicating services provided on credit and an increase in receivables.
Receipt for Cash on Account
- Processed by debiting Cash and crediting Accounts Receivable, showing cash received against previously billed services.
Partial Payment of Accounts Payable
- Reflected as a debit to Accounts Payable and a credit to Cash, demonstrating a reduction in liabilities.
Payment of Cash Dividend
- Involves debiting Dividends and crediting Cash to indicate distribution to shareholders.
Receipt for Cash for Future Services
- Involves debiting Cash and crediting Unearned Consulting Revenue, indicating cash received in advance for services not yet provided.
Pay Cash for Future Insurance Cover
- Recorded as a debit to Prepaid Insurance and a credit to Cash, indicating an asset purchase for future benefit.
Trial Balance
- A summary of all accounts and their respective balances at a specific point in time, serving to ensure accuracy in the accounting records.
Preparing a Trial Balance
- Entails documenting each account title and its balance, including zero balances as required, to confirm that total debits equal total credits.
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Description
Test your knowledge of essential accounting terms with these flashcards from Chapter 2. Learn about asset, liability, and equity accounts along with their definitions. Perfect for homework help and exam preparation.
