Financial Accounting CHPT 2

T - account

A simplified form of a general ledger account with space at the top for the account title, left side for recording debits, and right side for recording credits.

Retained Earnings

Revenue, Expenses, and Dividends

Account

a record of all transactions for an item over a period of time

Temporary accounts

account balances that’s maintained for a single period and then closed (or zeroed out) and transferred to the balance of the retained earnings account at the end of the period

Basic Accounting Equation

Assets = Liabilities + Owners' Equity

dual effects of transactions

when one side changes, then the other side changes by the same amount

Debit

An entry on the LEFT side of an account

Credit

an entry on the RIGHT side of an account

Journal entry

where companies record their transaction

Posting process

transferring the debit and credit information from the journal to individual ledger accounts

Purpose of Income statement

Show the user of the financial statments the components of net income, the causes of net income.

External transactions

transaction between the company and a separate company or individual

Internal Transaction

transactions that do not include an exchange with a separate economic entity

Chart of Accounts

a list of all account names used to record the transactions of a company

deferred revenue

money collected before the company provide their services

General Ledger

provides, in a single collection, each account with its individual transactions resulting account balance

Trial Balance

a list of all accounts and their balances at a particular date, showing total debits = total credits

Revenue Recognition Principle

specifies both the timing and amount of revenue to be recognized during an accounting period