Chapter 2: Accounting for Business Transactions - Key Terms

Vocabulary flashcards covering Chapter 2 concepts: accounts, debits/credits, double-entry, journal, ledger, trial balance, source documents, financial statements, debt ratio, Big Data, and AI/ML.

Account

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense.

General ledger

A complete record of all accounts and their balances.

Chart of accounts

A list of all accounts used in the system, each with an identifying number.

Source documents

Documents that identify transactions entering the accounting system (e.g., bills, receipts, checks, purchase orders, payroll records, bank statements).

Asset Accounts

Accounts that track resources controlled by the company (e.g., Cash, Accounts Receivable, Supplies, Equipment, Land, Prepaid Insurance).

Liability Accounts

Accounts that track obligations (e.g., Accounts Payable, Notes Payable, Unearned Revenue, Accrued Liabilities).

Equity Accounts

Owner's claim on the business; includes Common Stock and Retained Earnings; Revenues increase equity, Expenses and Dividends decrease equity.

Revenue Accounts

Accounts that record income; increase equity.

Expense Accounts

Accounts that record costs; decrease equity.

Debit

An entry on the left side that increases assets and expenses and decreases liabilities, equity, and revenues.

Credit

An entry on the right side that increases liabilities, equity, and revenues and decreases assets and expenses.

Double-Entry Accounting

A system in which every transaction has equal debits and credits; the accounting equation remains balanced.

Assets = Liabilities + Equity

The fundamental accounting equation.

Expanded Accounting Equation

An expanded form that shows the components of equity (e.g., common stock and retained earnings).

T-Account

A visual ledger account with Debit (left) and Credit (right) sides used to show transaction effects.

Journal

The book of original entry where transactions are recorded with dates, accounts debited and credited, and explanations.

Posting

Transferring journal entries to the ledger accounts.

Trial Balance

A listing of all ledger accounts and their balances; totals of debits and credits should match.

Ledger

A collection of all accounts and their balances.

Income Statement

Reports revenues minus expenses over a period.

Balance Sheet

Reports assets, liabilities, and equity at a point in time.

Statement of Retained Earnings

Shows changes in retained earnings due to net income and dividends over a period.

Debt Ratio

Debt ratio = total liabilities / total assets; higher ratios indicate greater debt risk.

Big Data

Massive, complex datasets; 3 V’s: Volume, Velocity, Variety.

Machine Learning

A subset of AI that uses algorithms and models to learn from data and help automate decision-making.