Accounting Review: Balance Sheets, Transactions, T-Accounts, and Trial Balances

Vocabulary practice flashcards covering fundamental accounting concepts, GAAP principles, balance sheet creation, T-accounts, and trial balances.

Three-Line Heading

The standard header at the top of a balance sheet or trial balance answering the three questions: Who?, What?, and When?

Accounts Receivable (A/R)

A list of clients or people who owe money to the company or an individual and usually pay later; they are known as debtors.

Debtors

Clients who owe money to a business or individual and usually pay for goods or services later.

Accounts Payable (A/P)

A list of suppliers that the business owes money to; they are known as creditors.

Creditors

Suppliers to whom a business owes money.

Order of Liquidity (Assets)

The listing order based on how easily an asset can be converted into cash, where cash and the bank balance are always listed first.

Order of Liquidity (Liabilities)

The listing order of liabilities, which is usually arranged in the order that items were paid.

Balance Sheet

A financial statement that shows what a business owns, owes, and what the owner has left.

Business Entity Concept

A GAAP principle requiring the business's money and the owner's personal money to be kept separated (e.g., an owner's personal car cannot be listed as a business asset).

Continuing Concern Concept (Going Concern)

A GAAP principle assuming that a business will continue operating in the future rather than closing.

Principle of Conservatism

A GAAP principle requiring a business to be careful and realistic when reporting financial data, avoiding exaggeration of asset values.

Business Transaction

Any event or occurrence that changes a business's finances and affects at least two accounts.

Source Document

Original records that provide proof of a business transaction, from which accounting entries are made.

Objectivity Principle

A GAAP principle stating that financial information must be based on facts and proof rather than personal opinions.

Transaction Analysis Sheet

A document used to record how business transactions increase or decrease different accounts while keeping the accounting equation balanced, later used to prepare a balance sheet.

T-Account

A simple format to record changes in a business account consisting of three essential elements: a title, a left side (Debit), and a right side (Credit).

Debit

The left side of a T-account where assets increase, and liabilities and owner's equity decrease.

Credit

The right side of a T-account where liabilities and owner's equity increase, and assets decrease.

Double-Entry System

An accounting rule where every transaction must have equal debits and credits to ensure the ledger remains correct.

Pin Totals

The subtotals calculated on the debit and credit sides of a T-account before finding the final account balance.

Account Balance Procedure (T-Accounts)

The process of subtracting the smaller pin total from the bigger pin total and recording the resulting difference under the bigger pin total.

Trial Balance

A list of all accounts and their balances in debit and credit columns to verify that total debits equal total credits.

Trial Balance Verification (Step 4)

The step where debit and credit balances are totaled; if the totals match, they are double underlined, but if they do not match, an error has occurred.