Accounting for Business Transactions

source documents

Source of information for accounting entries that can be in either paper or electronic form

account

Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue, or expense

general ledger

Record containing all accounts (with amounts) for a business

cash account

shows a company’s cash balance, all increases and decreases, money and any funds that a bank accepts for deposit

accounts receivable

held by a seller and are promises of payment from customers to sellers, increased by credit sales or sales on credit, decreased by customer payments

notes receivable

a written promise of another entity to pay a specific sum of money on specified future date to the holder of the note, usually require interest

prepaid accounts

assets from prepayments of future expenses

supplies account

assets until they are used

equipment accounts

an asset, allocated over time to expense, depreciation, usually extends over several years

building accounts

stores, offices, warehouses, and factories are assets

creditors

Individuals or organizations entitled to receive payments

debtors

Individuals or organizations that owe money.

accounts payable

promises to pay later

notes payable

written promissory to pay a future amount

unearned revenue

Liability created when customers pay in advance for products or services; earned when the products or services are later delivered

accrued liabilities

amounts owed that are not yet paid; wages, taxes, interest

chart of accounts

List of accounts used by a company; includes an identification number for each account.

t-account

Tool used to show the effects of transactions and events on individual accounts

debit

Recorded on the left side; an entry that increases an asset or expense account, or decreases a liability, revenue, or equity account; abbreviated Dr.

credit

Recorded on the right side; an entry that decreases an asset or expense account, or increases a liability, revenue, or equity account; abbreviated Cr.

account balance

Difference between total debits and total credits (including the beginning balance) for an account.

double-entry accounting

Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit.

journal

Record in which transactions are entered before they are posted to ledger accounts

journalizing

Process of recording transactions in a journal.

posting

Process of transferring journal entry information to the ledger; computerized systems automate this process

general journal

All-purpose journal for recording the debits and credits of transactions and events

posting reference (PR) column

in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts

balance column account

Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry

big data

Extremely large datasets that are analyzed computationally to reveal patterns, trends, and associations.

service department expenses

costs from service department activities that benefit more than one department; they cannot be readily traced to one department

trial balance

List of ledger accounts and their balances (either debit or credit) at a point in time; total debit balances equal total credit balances

debt ratio

Ratio of total liabilities to total assets; used to reflect risk associated with a company’s debts