15 terms

Accounting 1 - Chapter 2

An account is a record of increases and decreases in a specific asset, liability, equity, revenue,or expense item. Information from an account is analyzed, summarized, and presented in reports and financial statements.

Accounts are arranged into three general categories
Asset Accounts=Liability Accounts+Equity Accounts
Source Documents
Source documents identify and describe transactions and events entering the accounting
process. They are the sources of accounting information and can be in either hard copy or
electronic form.
Asset Accounts
Assets are resources owned or controlled by a company and that have expected future benefits.

Asset accounts are: Cash, AR, Note receivables, Prepaid Accounts, Supplies, Equipment, Buildings, and land.
Liability Accounts
Liabilities are claims (by creditors) against assets, which means they are obligations to transfer assets or provide products or services to others. Liability accounts include: Accounts payable, Notes payable, Unearned revenue, and Accrued liabilities. Balance Sheet Accounts
Equity Accounts
Equity Accounts The owner's claim on a corporation's assets is called equity, stockholders' equity, or shareholders' equity. Equity is the owners' residual interest in the assets of business after deducting liabilities. Equity is impacted by four types of accounts: common stock, dividends, revenues, and expenses. Equity accounts + common stock-divdends+revenues-expenses.
Cash account
A Cash account reflects a company's cash balance. All increases and decreases in cash are
recorded in the Cash account. It includes money and any medium of exchange that a bank accepts
for deposit (coins, checks, money orders, and checking account balances).
Accounts receivable
Accounts receivable are held by a seller and refer to promises of payment from customers to sellers. These transactions are often called credit sales or sales on account (or on credit). Accounts receivable are increased by credit sales and are decreased by customer payments.
Note receivable
Note receivable, or promissory note, is a written promise of another entity to pay a definite sum of money on a specified future date to the holder of the note. A company holding a
promissory note signed by another entity has an asset that is recorded in a Note (or Notes)Receivable account
Prepaid accounts
Prepaid accounts (also called prepaid expenses) are assets that represent prepayments of future expenses (not current expenses). When the expenses are later incurred, the amounts in prepaid accounts are transferred to expense accounts. When financial statements are prepared, prepaid accounts are adjusted so that all expired and used prepaid accounts are recorded as regular expenses and
(2) all unexpired and unused prepaid accounts are recorded as assets (reflecting future use in future periods).
Accounts payable
Accounts payable refer to oral or implied promises to pay later, which usually arise from purchases of merchandise. Payables can also arise from purchases of supplies, equipment, and services. Accounting systems keep separate records about each creditor.
Chart of Accounts (COA)
The chart of accounts is a list of all ledger accounts and includes an identification number assigned to each account.
Trial Balance
A list of general ledger accounts with their balances. A trial balance is used to check that the total value of all debit entries made during the period equals the total value of all credit entries made in the same period.
A T-account is a simplified version of a ledger account.
The left side of an account is called the debit side, often abbreviated Dr. The right side is called the credit side, abbreviated Cr.2
Double-Entry Accounting
A system of accounting whereby two entries are made in the ledger accounts for each business transaction. One of these entries is known as a debit entry and the other as a credit entry. Double-entry accounting requires that for each transaction:
1. At least two accounts are involved, with at least one debit and one credit.
2. The total amount debited must equal the total amount credited.
3. The accounting equation must not be violated.
Journalizing and Posting Transactions
A. Four steps in processing transactions are as follows:
Journalizing--The process of recording each transaction in a journal.
1. Identify transaction and source documents.
2. Analyze using the accounting equation. (Applying double entry accounting to determine account to be debited and credited.)
3. Record journal entry.—record chronologically (A journal gives us a complete record of each transaction in one place.)
a. A General Journal is the most flexible type of journal because it can be used to record any type of transaction.
b. When a transaction is recorded in the General Journal, it is called a journal entry. A journal entry that affects more than two accounts is called a compound journal entry.
c. Each journal entry must contain equal debits and credits.
4. Post entry to ledger—transfer (or post) each entry from journal to ledger.
a. Debits are posted as debit, and credits as credits to the accounts identified in the journal entry.
b. Actual accounting systems use balance column accounts rather than T accounts in the ledger.
c. A balance column account has debit and credit columns for recording entries and a third column for showing the balance of the account after each entry is posted.