Questions and Answers
What is an account number?
The number assigned to an account
What is a correcting entry?
A journal entry made to correct an error in a previous journal entry
What does file maintenance involve?
The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current
What is a general ledger?
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What is a ledger?
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What does opening an account mean?
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What is posting?
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What is meant by proving cash?
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Because an account form has columns for the debit and credit balance of an account, it is often referred to as the balance-ruled account form.
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The asset division accounts for TechKnow Consulting are numbered in the 100s.
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The cash account is the first account and is numbered 100.
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The second division of TechKnow Consulting's chart of accounts is the owner's equity division.
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The first digit of account numbers for accounts in the owner's equity ledger division is 3.
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The last two digits in a 3-digit account number indicate the general ledger division of the account.
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When adding a new expense account between accounts numbered 510 and 520, the new account is assigned the account number 515.
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TechKnow Consulting arranges expense accounts in chronological order in its general ledger.
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The two steps for opening an account are writing the account title and recording the balance.
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Posting sorts journal entries so that all debits and credits affecting each account are brought together in one place.
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Each amount in the debit and credit columns of a general journal is posted to the account written in the account title column.
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The only reason for the Post.Ref columns of the journal and general ledger is to indicate which entries in the journal still need to be posted if posting is interrupted.
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A blank in the Post.Ref column of the journal indicates that posting for that line still needs to be completed.
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Recording the posting reference is always the last step in the posting procedure.
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The first step to post an amount from the credit column is to write the date in the date column of the account.
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Whenever the credits in an account exceed the debits, the balance is a credit.
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Cash can be proved at any time.
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If the cash balance in the checkbook equals the cash balance in the cash account, cash is proved.
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Journal errors discovered before the entries are posted are corrected by first preparing a memorandum describing the correction to be made.
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When making a correcting entry, the same four steps are followed as when making any journal entry.
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Study Notes
Accounting Terms and Definitions
- Account Number: Unique identifier assigned to each account for tracking purposes.
- Correcting Entry: Adjustment made in the journal to rectify any errors in previous entries.
- File Maintenance: Process of organizing accounts in a general ledger, including assigning account numbers and updating records.
- General Ledger: Comprehensive ledger that includes all accounts necessary for financial statement preparation.
- Ledger: Compilation of various accounts, representing a financial record.
- Opening an Account: Initial step involving the notation of account title and number in the account heading.
- Posting: The act of transferring data from journal entries to the respective ledger accounts.
Cash Management
- Proving Cash: Ensures that cash account balances match the recorded amounts, confirming accuracy.
- Journal Entries: Amounts in the Debit and Credit columns reflect the account listed in the Account Title column during posting.
Account Structure
- Balance-Ruled Account Form: Refers to account forms with designated columns for tracking debit and credit balances.
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TechKnow Consulting Account Numbers:
- Asset division accounts are numbered in the 100s.
- Cash account is erroneously identified as the first numbered 100.
- Owner's Equity division is mistakenly part of the second division.
- First digit for owner's equity accounts is 3, denoting their specific category.
- Last two digits of a 3-digit account number indicate the general ledger division.
Account Number Management
- New Expense Account Creation: New accounts can be assigned numbers between existing accounts, such as placing 515 between 510 and 520.
- Expense Account Arrangement: Contrary to the chronological system, TechKnow Consulting does not arrange expense accounts in this order.
Posting Procedures
- Posting Process: Includes sorting journal entries to consolidate all debits and credits per account.
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Completing Post Reference:
- Blank entries in the Post Ref column indicate that posting has not been fully completed.
- Recording posting references is the final step in all posting procedures.
Credit and Debit Accounting
- Credit Balances: A balance is considered a credit if the credits surpass debits.
- Cash Proving: Cash balances can be verified at any moment, ensuring that discrepancies are promptly addressed.
- Checkbook and Cash Account: Matching cash balances between a checkbook and cash account will confirm cash accuracy.
Correcting Entries
- Error Correction Process: Journal errors identified before posting do not require a memorandum for corrections, challenging the notion of needing a formal description before adjustments.
- Methodology for Correcting Entries: Maintaining similar procedural steps as with regular journal entries is essential for effective corrections.
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Description
Test your knowledge of key accounting terms with this quiz. Each question focuses on definitions and concepts essential for understanding the basics of accounting. From account numbers to general ledgers, enhance your familiarity with accounting vocabulary.
