Financial Accounting Chapter 2

Front 1

Account

Back 1

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

Front 2

Double-Entry System

Back 2

Each transaction must affect two or more accounts to keep the basic accounting equation in balance.

Recording done by debiting at least one account and crediting another.

DEBITS MUST EQUAL CREDITS

Front 3

Normal balance

Back 3

The normal balance of an account is on the side where an increase in the account is recorded

Front 4

Assets

Back 4

Debits should exceed credits

Front 5

Liabilities

Back 5

Credits should exceed debits.

Front 6

Owner’s investments and revenues

Back 6

increase stockholders’ equity (credit)

Front 7

Dividends and expenses

Back 7

decrease stockholders’ equity (debit)

Front 8

The purpose of earning revenues is to______.

Back 8

benefit the stockholders.

(expenses decrease stockholders’ equity)

Front 9

Normal Balance: Debit

Back 9

Assets and Expenses

Front 10

Normal Balance: Credit

Back 10

Liabilities, Stockholders Equity, and Revenue

Front 11

Journal

Back 11

- Book of original entry

- Transactions recorded in chronological order

- Shows debit and credit of transaction

Front 12

General Ledger

Back 12

contains the entire group of accounts maintained by a company

Front 13

Trial Balance

Back 13

The trial balance may balance even when:

1. A transaction is not journalized.

2. A correct journal entry is not posted.

3. A journal entry is posted twice.

4. Incorrect accounts are used in journalizing or posting.

5. Offsetting errors are made in recording the amount of a transaction.

Front 14

A trial balance will not balance if:

A. a correct journal entry is posted twice.

B. the purchase of supplies on account is debited to Supplies and credited to Cash.

C. a $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100.

D. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

Back 14

A $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100.

Front 15

If president dies then...

Back 15

it does not effect accounting equation

Front 16

If an employee is fired then...

Back 16

it does not effect accounting equation

Front 17

Owner's investments go under ______________ in the basic accounting equation.

Back 17

stockholders equity

Front 18

Sells a house and lot for N Fenning; bills N. Fenning $3200 for reality services provided:

Back 18

Accounts receivable- Debited

Service Revenue- Credited

Front 19

Pays $975 on the balance related to the transaction of October 3.

(Oct 3rd transaction: Purchases office furniture for $2,639, on account.)

Back 19

Accounts Payable- Debited

Cash- Credited

Front 20

Net income / loss can be determined by doing

Back 20

Revenue - Expense = net income / loss

Front 21

Retained earnings =

Back 21

Previous retained earnings (if such exist) + net income - dividend