Accounting Basics 1
What is the purpose of accounting?
To record financial information.
What are expenses?
The cost a business sustains to operate and earn revenue.
Difference between debit and credit.
Debit = Left
Credit = Right
What do liabilities represent?
The amount owned to others.
What are source documents?
The original records of the transaction.
What are the 3 main sheets prepared by accountants?
1. General Journal
2. Ledger
3. Trial Balance
Assets - Liabilities = Owners Equity
Is an asset a debit or credit?
Debit
What is the term that refers to money being invested by the owner?
Capital
Why are transactions first record in the general jounral?
To show the dates, accounts, debits and credits.
Define assets.
Resources owned by a business.
What account increases when a business makes a sale?
Revenue
If a liability decreases what changes?
Credit to a debit.
Define Owners Equity.
The contribution that the owner makes to the business.
Why must the general journal be recorded in chronological order?
To keep a clear, traceable and accurate journal.
How is revenue earnt?
By a business selling goods or services.
What is the purpose of a trial balance?
To check if the total debits equal the total credits.
A customer pays $600 they previously owed. Identify the debit and credit accounts.
Debit = Cash at Bank
Credit = Account recievable
What is drawings?
Money or assets taken out of the business by the owner for personal use.
List 2 errors a trial balance can detect.
1. Unequal debits and credits.
2. Mathematical mistakes.
Define double-entry accounting.
Every transaction affects at least 2 accounts, one debit, one credit.
What is COGS?
Cost of goods sold.
Your business performs a $1200 of services for a customer on credit. Which accounts are debited and credited.
Accounts receivable = Debit
Service fee revenue = Credit
Define accounts receivable.
Money owed to the business by customers.
What happens if a step is skipped?
Errors go unnoticed, adjusting entries may be wrong and financial statements become unreliable.