Accounting Ch. 3

  1. Accounting trasactions
    • Events that require recording in the financial statements because they
    • affect assets, liabilities, or stockholders' equity.

    • (Transaction analysis is the
    • process of identifying the specific effects of economic events on the
    • accounting equation).
  2. Account
    • An individual accounting record of increases and decreases in specific
    • asset, liability, stockholders' equity, revenue or expense items.

    • For example, Sierra Corporation has separate accounts for Cash, Accounts
    • Receivable, Accounts Payable, Service Revenue, Salaries Expense, and so
    • on. (Note that whenever we are referring to a specific account, we
    • capitalize the name.)

    (See T Account for more details)
  3. T Account
    The basic form of an account.

    • In its simplest form, an account consists of three parts: (1) the title
    • of the account, (2) a left or debit side, and (3) a right or credit
    • side. Because the alignment of these parts of an account resembles the
    • letter T, it is referred to as a T
    • account.

    (See Account for more details)
  4. The term ____ indicates the left side of an account, and ____
    indicates the right side.
    debit (left side); credit (right side)

    • They are commonly abbreviated as Dr. for debit and Cr. for credit. They do not mean increase or
    • decrease, as is commonly thought. We use the terms debit and credit repeatedly in the recording process to describe where entries are made in accounts. For example, the act of entering an amount on the left side of an account is called debiting the
    • account. Making an entry on the right side is crediting the account.
  5. Double-entry system
    • A system that records the dual effect of each transaction in appropriate
    • accounts.
  6. What are three basic steps in the transaction recording process?
    • 1. Analyse each transaction in terms of its effect on the accounts
    • 2. Enter the transaction information in a journal
    • 3. Transfer the journal information to the appropriate accounts in the ledger (book of accounts)
  7. Journal
    An accounting record in which transactions are initially recorded in chronological order.
  8. General Journal
    The most basic form of journal.
  9. Ledger
    The group of accounts maintained by a company.

    • The ledger keeps in one place all the information about changes in
    • specific account balances.
  10. General Ledger
    A ledger that contains all asset, liability, stockholder's equity, revenue and expense accounts.
  11. Chart of Accounts
    A list of a company's accounts.
  12. Posting
    The procedure of transferring journal entry amounts to the ledger accounts.
  13. Trial Balance
    A list of accounts and their balances at a given time.
  14. What are three procedures for preparing a trial balance?
    • 1. List the account titles and their balances
    • 2. Total the debit column and total the credit column
    • 3. Verify the equality of the two columns
Card Set
Accounting Ch. 3
Accounting information system