Financial Accounting - The Recording Process

Vocabulary practice flashcards created from Chapter 2 lecture slides on the accounting recording process, journal entries, ledgers, posting, and trial balances.

Account

An individual accounting record of increases and decreases in a specific asset, liability, or equity item.

Debit (Dr.)

The left side of an account.

Credit (Cr.)

The right side of an account.

Basic Form of Account

An accounting account format consisting of three basic parts: (1) a title, (2) a left or debit side, and (3) a right or credit side.

Normal Balance

The side of an account (debit or credit) where increases are recorded.

Retained Earnings

Net income kept (retained) in the business, representing the accumulated portion of equity earned through profitable operations.

Dividends

A company's distribution to its shareholders, which reduces the shareholders' claims on retained earnings.

The Recording Process

The sequential procedure in accounting consisting of: (1) analyzing transactions, (2) entering transactions in a journal, and (3) transferring journal information to ledger accounts.

Journal

The book of original entry in which business transactions are initially recorded in chronological order.

Journalizing

The act of entering transaction data into the journal.

Simple Entry

A journal entry that involves only one debit account and one credit account.

Compound Entry

A journal entry that requires three or more accounts.

Ledger

The entire group of accounts maintained by a company that provides account balances and tracks changes in those balances.

Three-Column Form of Account

A standard form of ledger account that features three money columns: debit, credit, and balance.

Posting

The process of transferring journal entries to the individual ledger accounts.

Chart of Accounts

A structured list of a company's accounts and the identifying account numbers assigned to them in the general ledger.

Prepaid Expenses

Payments of expenses made in advance that will benefit more than one accounting period, recorded initially as asset accounts.

Unearned Service Revenue

A liability account created when a company receives cash advance payments before services are performed or products delivered.

Trial Balance

A statement listing all accounts and their debit or credit balances at a given time to verify the mathematical equality of debits and credits after posting.

Error

An unintentional mistake made during the accounting process, considered neither ethical nor unethical.

Irregularity

An intentional misstatement in accounting records, viewed as unethical.

Transposition Error

An accounting error caused by reversing digits when copying figures (such as writing $12$ instead of $21$), resulting in a discrepancy divisible by $9$.