Financial Accounting Chapter 2

Account

a record of the business activities related to a particular item

Accounting cycle

Full set of procedures used to accomplish the measurement/communication process of financial accounting

Chart of accounts

A list of all account names used to record transactions of a company

Credit

RIGHT SIDE OF AN ACCOUNT. Indicates a decrease to asset, expense, or dividend accounts, and an increase to liability, stockholder’ equity, or revenue accounts.

Debit

LEFT SIDE OF AN ACCOUNT. Indicates an increase to asset, expense, or dividend accounts, and a decrease to liability, stockholders’ equity, or revenue accounts.

External transactions

Transactions between the company and other entities

General ledger

A collection of each account with its individual transactions and resulting account balance

Journal

A chronolgical record of all transactions affecting a firm

Journal entry

The format used for recording business transactions

Posting

The process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Revenue recognition principle

Record revenue in the period in which goods or services are provided to customers for the amount the company expects to be entitled to receive

T-account

A simplified form of a general ledger account with space at the top for the account title, left side for recording debits, and right side for recording credits.

Trial balance

A list of all accounts and their balances at a particular date, showing that total debits equal total credits