Unit I: Accounting for a Service Business Organized as a Proprietorship

T account

an accounting device used to analyze transactions

debit

*LEFT* an amount recorded on the left side of a T account

credit

*RIGHT* an amount recorded on the right side of a T account

normal balance

the side of the account that is INCREASED

chart of accounts

a list of accounts used by a business

accounting

planning, recording, analyzing, and interpreting financial information

accounting system

a planned process for providing financial information that will be useful to management

accounting records

organized summaries of a business's financial activities

accounting equation

an equation showing the relationship among assets, liabilities, and owner's equity

account title

the name given to an account

account

a record summarizing all information pertaining to a single item in the accounting equation

account balance

the amount in an account

financial statements

financial reports that summarize the financial conditions and operations of a business

service business

a business that performs an activity for a fee

merchandising business

a business that purchases and sells goods

proprietorship

a business owned by one person

asset

*OWN*anything of value that is owned

equities

financial rights to the assets of a business

liability

*OWE* an amount owned by a business

owner's equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

ethics

the principles of right and wrong that guide an individual in making decisions

business ethics

the use of ethics in making business decisions

transaction

a business activity that changes assets, liabilities, or owner's equity

capital

the account used to summarize the owner's equity in a business

revenue

an increase in owner's equity resulting from the operation of a business

sale on account

a sale for which cash will be received at a later date

expense

a decrease in owner's equity resulting from the operation of a business

withdrawals

assets taken out of a business for the owner's personal use

corporation

an organization with the legal rights of a person and which may be owned by many persons

partnership

a business in which two or more persons combine their assets and skills

partnership agreement

a written agreement setting forth the conditions under which a partnership is to operate

partner

each member of a partnership

journal

a form for recording transactions in chronological order

journalizing

recording transactions in a journal

entry

information for each transaction recorded in a journal

general journal

a journal with two amount columns in which all kinds of entries can be recorded

double-entry accounting

the recording of debit and credit parts of a transaction

source document

a business paper from which information is obtained for a journal entry

check

a business ordering a bank to pay cash from a bank account

invoice

a form describing the goods or services sold, the quantity, and the price

sales invoice

an invoice used as a source document for recording a sale on account

receipt

a business form giving written acknowledgement for cash received

memorandum

a form on which a brief message is written describing a transaction

ledger

a group of accounts

general ledger

a ledger that contains all accounts needed to prepare financial statements

account number

the number assigned to an account

file maintenance

the procedure for arranging accounts in a general ledger, assigning account numbers and keeping records current

opening an account

writing an account title and number on the heading of an account

posting

transferring information from a journal entry to a ledger account

proving cash

determining that the amount of cash agrees with the accounting records

correcting entry

a journal entry made to correct an error in the ledger