Debits, Credits & Accounts
What does “Dr.” mean in accounting?
Debit
What is the book of original entry called?
The journal
What is the purpose of adjusting entries?
To update account balances before preparing financial statements
Which statement shows revenues and expenses?
The Income Statement
Which side of the T-account increases assets?
The left (debit) side
What is the process of transferring journal entries to ledger accounts called?
Posting
What are prepaid expenses?
Expenses paid in cash before they are used or consumed
What principle requires expenses to match the revenues they help generate?
The Expense Recognition (Matching) Principle
What type of accounts normally have credit balances?
Liabilities, revenues, and equity
What does a trial balance prove?
The mathematical equality of debits and credits
What are accrued revenues?
Revenues earned but not yet received or recorded
What is the difference between cash and accrual basis accounting?
Cash basis records when cash changes hands, accrual when transactions occur
Why must total debits always equal total credits?
To keep the accounting equation balanced (Assets = Liabilities + Equity)
What is one limitation of a trial balance?
It doesn’t detect all types of errors (e.g., omissions or wrong accounts)
What happens if adjusting entries are omitted?
Net income and assets may be misstated (usually overstated)
What is the purpose of closing entries?
To reset temporary accounts and transfer net income to retained earnings