Financial Accounting: An Introduction - Chapter 3 Flashcards

Vocabulary flashcards based on Chapter 3 of Financial Accounting: An Introduction, 6th Edition, focusing on the practice of accounting.

Accounting Equation

The foundation of accounting that shows the effect of every financial transaction.

Double Entry Principle

Every transaction affects at least two items in the accounting equation.

Accounting Cycle

The standard sequence of accounting procedures, from transaction to financial statements.

Source Document

A record of where the transaction took place and the amount.

Journal Entry

The initial formal recording of a transaction in the accounting system.

Posting to Ledger Accounts

Transferring journal entry information to the appropriate accounts in the general ledger.

Balancing Ledger Accounts

Determining the debit or credit balance of an account at the end of a period.

Trial Balance

A list of all accounts in the general ledger and their balances at a specific point in time.

Closing Entries

Entries made at the end of an accounting period to transfer temporary account balances to permanent equity accounts

Post-Closing Trial Balance

A trial balance extracted after closing entries have been made.

Specialized Journals

Journals designed to record specific types of transactions, such as all cash receipts.

Assets

Resources controlled by the business as a result of past events

Liabilities

Obligations of the business arising from past events

Equity

The residual interest in the assets of the business after deducting all its liabilities

Drawings

Withdrawals of assets by the owner for personal use.

Income

Increases in economic benefits during the accounting period.

Expenses

Decreases in economic benefits during the accounting period.

Cost of Sales

The cost of inventory that has been sold during the period.

Trade Receivable

An asset representing amounts owed to the business by customers.

Trade Payable

A liability representing amounts owed by the business to suppliers.

Inventory

The value of goods available for sale.

Cash Receipts Journal

A record of cash flowing into the business.

Cash Payments Journal

A record of cash flowing out of the business.

Purchases Journal

A record of purchases made on credit.

Sales Journal

A record of sales made on credit.

Debit (Dr)

An abbreviation indicating an increase in assets or expenses, or a decrease in liabilities, equity, or income.

Credit (Cr)

An abbreviation indicating an increase in liabilities, equity, or income, or a decrease in assets or expenses.

General Ledger

The main accounting record that contains all of a business's accounts.

Accrual Basis

This principle states that revenue is recognized when earned, regardless of when cash is received.

Retained Earnings

The accumulated profits of a company which have not been distributed as dividends.