Ch 3 flashcards

Accounting Information System

A system of collecting transaction data, processing transaction data, and communicating financial information to decision-makers.

Accounting Cycle

The basis of an accounting information system, implemented primarily through a computerized accounting system.

Accounting Transactions

Economic events that require recording in the financial statements, which have a dual effect on the accounting equation.

Basic Accounting Equation

Assets = Liabilities + Stockholders’ Equity, which must always balance.

Debits and Credits

Debits are left-side entries to accounts while credits are right-side entries.

Journal

An accounting record in which transactions are recorded in chronological order, showing the debit and credit effects on specific accounts.

Ledger

A record of all accounts maintained by a company, providing balances and tracking changes.

Trial Balance

A list of accounts and their balances prepared at the end of an accounting period to prove that debits equal credits after posting.

Common Stock

A part of stockholders' equity that represents the amount invested by stockholders in exchange for shares.

Retained Earnings

Net income that is retained in the business after dividends are paid.

Unearned Service Revenue

Liability account that represents cash received before services are performed.

Dividends

The distribution of cash or stock to shareholders, which decreases stockholders' equity.

Double-Entry Accounting System

A system that requires a two-sided effect for each transaction recorded in appropriate accounts.

Post to Ledger Accounts

The procedure of transferring journal entry amounts to ledger accounts.

Accrual Accounting

An accounting method where revenue is recorded when earned and expenses are recorded when incurred, regardless of cash flow.

Normal Balance

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

Expense Accounts

Accounts that track the costs incurred by a business and decrease stockholders' equity.

Tabular Analysis

A method used to demonstrate the effect that each transaction has on particular financial statements.

Chart of Accounts

A list of accounts used by a company, organized by asset, liability, equity, revenue, and expense categories.

Source Document

Document that provides the evidence of a transaction, such as a receipt or invoice.

Account Titles

The names of accounts in the ledger used to organize financial transactions.