Financial & Managerial Accounting Chapter 2

account

An accounting form that is used to record the increases and decreases in each financial statement item.

account receivable

A claim against the customer created by selling merchandise or services on credit.

assets

The resources owned by a business.

balance of the account

The amount of the difference between the debits and the credits that have been entered into an account.

chart of accounts

A list of the accounts in the ledger.

correcting journal entry

An entry that is prepared when an error has already been journalized and posted.

credit

Amount entered on the right side of an account.

debit

Amount entered on the left side of an account.

dividends

Distribution of a corporation's earning to stockholders.

double-entry accounting system

A system of accounting for recording transactions, based on recording increases and decreases in accounts so that debits equal credits.

expenses

Assets used up or services consumed in the process of generating revenues.

horizontal analysis

Financial analysis that compares an item in a current statement with the same item in prior statements.

journal

The initial record in which the effects of a transaction are recorded.

journal entry

The form of recording a transaction in a journal.

journalizing

The process of recording a transaction in the journal.

ledger

A group of accounts for a business.

liabilities

The rights of creditors that represent debts of the business.

normal balance of an account

The normal balance of an account can be either a debit or a credit depending on whether increases in the account are recorded as debits or credits.

posting

The process of transferring the debits and credits from the journal entries to the accounts.

revenue

Increase in owner's equity as a result of selling services or products to customers.

rules of debit and credit

In the double-entry accounting system, specific rules for recording debits and credits based on the type of account.

slide

An error in which the entire number is moved one or more spaces to the right or the left, such as writing $542.00 as $54.20 or $5,420.00.

stockholders' equity

The owners' equity in a corporation.

T account

The simplest form of an account.

transposition

An error in which the order of the digits is changed, such as writing $542 as $452 or $524.

trial balance

A summary listing of the titles and balances of accounts in the ledger.

unadjusted trial balance

A summary listing of the titles and balances of accounts in the ledger prior to the posting of adjusting entries.

unearned revenue

The liability created by receiving revenue in advance.