Analyzing Transactions in BUS 241: Chapter 2

Account

A record showing increases and decreases in elements.

Chart of Accounts

A list of accounts in a ledger.

Ledger

A group of accounts for a business entity.

Assets

Resources owned by a business entity - normal debit balance.

Liabilities

Debts owed to outsiders or creditors - normal credit balance.

Stockholders' Equity

Stockholders' rights to business assets - common stock & retained earnings have normal credit balances.

Revenues

Increases in assets from selling services/products - normal credit balance.

Expenses

Costs incurred to generate revenues - normal debit balance.

Double-Entry Accounting System

Records transactions in at least two accounts.

Debits

Entries that increase assets, expenses or dividends (DEA).

Credits

Entries that increase liabilities, equity (common stock & retained earnings), and revenue.

Unadjusted Trial Balance

A summary of all account balances before adjusting journal entries.

Balance Sheet Accounts

Report including accounts representing assets, liabilities, and equity.

Income Statement Accounts

Report including accounts representing revenues and expenses.

Account Numbering System

Systematic numbering for account types

1 = assets

2 = liabilities

3 = equity

4 = revenue

5 = expense

Common Stock

Equity representing ownership in the company - normal balance is credit

Retained Earnings

Cumulative profits retained in the business - normal balance is credit

Dividends

Distributions of earnings to stockholders - normal debit is debit

Accounts Receivable

Money owed by customers for services/products - normal balance is debit

Unearned Revenues

Cash received before services are delivered - a liability - normal balance is credit

Prepaid Expenses

Payments made for services not yet received - only account with word "expense" that is *NOT* an expense - normal debit balance - example is supplies.

T Account

Visual representation of debits and credits - add each side - then net debits/credits to get account balance.

Dividends

Payments made to shareholders from earnings - normal debit balance.

Normal Balances

Typical account balance as debit or credit - will increase an account balance.

Assets

Resources owned by a business - normal balance is debit

Liabilities

Obligations or debts owed by a business - normal balance is credit

Stockholders' Equity

Owners' residual interest in the business - normal balance (RE & common stock) is credit.

Accounting Equation

Assets = Liabilities + Stockholders' Equity.

Journalizing

Process of recording transactions in the journal.

Posting

Transferring journal entries to accounts.

Prepaid Insurance

Asset account for insurance paid in advance - normal debit balance

Unearned Revenue

Liability for cash received before service provided - normal credit balance.

Account Receivable

Claim against a customer for services rendered - asset - normal debit balance.

Fees Earned

Revenue recognized for services provided - normal credit balance.

Office Equipment

Asset purchased for business operations - normal debit balance.

Cash Payment

Outflow of cash for expenses or liabilities - credit to cash.

Rent Expense

Cost incurred for leasing office space - normal debit balance.

Advertisement Expense

Cost for promoting business through media.

Wages Expense

Cost of employee compensation for work performed - expense with normal debit balance.

Fees Earned on Account

Revenue from services billed but not yet paid - Debit Accounts receivable & Credit Fees Earned (revenue)

Liability

Obligation to pay debts or provide services - normal credit balance.

Asset

Resource owned by the business - normal debit balance

Equity

Owner's residual interest in the business - common stock & retained earnings have normal credit balances.

Paid Creditors

Transaction of settling debts to suppliers - debit accounts payable & credit cash.

Received Payment on Account

Cash received from customers for outstanding accounts - debit cash & credit accounts receivable.

Paid for Supplies

Cash payment made for purchasing supplies - debit supplies & credit cash.

Paid Wages

Compensation paid to employees for work performed - debit wage expense & credit cash.

Paid Telephone Bill

Monthly payment for telephone services - debit telephone (or utilities) expense & credit cash

Paid Electric Bill

Monthly payment for electricity usage - debit electric (or utility) expense and credit cash.

Received Cash Fees

Income earned from services provided to clients - Debit cash & credit Fees.

Fees Earned on Account

Revenue recognized for services not yet paid - Debit accounts receivable & credit fees earned.

Paid Dividends

Distribution of profits to shareholders - debit dividends & credit cash.

Trial Balance

Summary of all ledger accounts' balances as of a point in time.

Unadjusted Trial Balance

Initial trial balance before adjusting journal entries are made.

Adjusted Trial Balance

Trial balance after adjusting journal entries are recorded.

Post-Closing Trial Balance

Trial balance prepared after closing entries.

Transposition Error

Mistake from switching digits in numbers (i.e., writing 19 instead of 91)

Slide Error

Entire number copied incorrectly by shifting position.

Normal Balance

Expected balance type for an account - debit or credit (depending on account) that will increase the account balance.

Accounting Equation

Assets = Liabilities + Equity, fundamental accounting principle.