ACCT Analyzing Business Transactions Using T Accounts Chapter 3

Accounts Balance

the difference between the amounts recorded on the two sides of an account

Accounts

Written records of the assets, liabilities, and owner’s equity of a business

Classification

A means of identifying each account as an asset, liability, or owner’s equity

Credit

An entry on the right side of an account

Debit

An entry on the left side of an account

Double Entry System

An accounting system that involves recording the effects of each transaction as debits and credits

Footing

A small pencil figure written at the base of an amount column showing the sum of the entries in the column

Normal Balance

The increase side of an account

Prepaid Expenses

Expense items acquired, recorded, and paid for in advance of their use. A prepaid expense creates the right to use the item acquired for a given period. This right is an asset or unexpired cost. As the asset is used during the period, the used portion represents an expired cost, or an expense.

T Account

A type of account, resembling a T, used to analyze the effects of a business transaction

Chart of Accounts

A list of accounts used by a business to record its financial transactions

Drawing Account

A special type of owner’s equity account set up to record the owner’s withdrawal of cash from the business

Permanent Account

An account that is kept open from one accounting period to the next

Slide

An accounting error involving a misplaced decimal point. Decimal slides around.

Temporary Account

An account whose balance is transferred to another account at the end of an accounting period

Transposition

An accounting error involving misplaced digits in a number. Digits in the wrong position.

Trial Balance

A statement to test the accuracy of total debits and credits after transactions have been recorded