Accounts
A record of increases and decreases in a specific asset, liability, equity, revenue, or expense.
Account
Which side of a T-account do debits go on?
The left side
What is the first step in recording a transaction?
Identify the transaction and source documents.
Revenues and Expenses
What does the debt ratio measure?
The proportion of assets financed by debt.
Accounts that are included in the accounting equation
Assets, Liabilities, OE
True or False: Debits always increase an account.
False — debits increase assets and expenses but decrease liabilities, equity, and revenues.
Recording transactions in the journal in debit/credit format.
What is journalizing
Which statement reports changes in equity over a period of time?
Statement of Retained Earnings
A higher debt ratio means what?
Greater risk of not being able to pay debts.
What type of account is Unearned Revenue
A Liability
In double-entry accounting, what must always equal?
Total debits must equal total credits.
What is the purpose of posting to the ledger?
To organize all journal entries by account.
What does the balance sheet show? (need accounts and time)
Assets, liabilities, and equity at a point in time.
Name on internal user of financial statements?
CEO, CFO, Managers, etc..
Which accounts increase equity
Revenues and Common Stock
Give an example of an account increased by a debit.
Cash (asset) or Rent Expense (expense).
If you receive $30,000 cash investment from the owner, which accounts are affected?
Debit Cash, Credit Common Stock (equity).
What are the three main sections of the Statement of Cash Flows?
Operating activities, Investing activities, and Financing activities.
Name two external users of financial statements.
Investors, lenders, or regulators.
What is the difference between a general ledger and a chart of accounts
A general ledger is a record of all accounts and balances; a chart of accounts is just a list of account titles and numbers.
Prepaid accounts (also called prepaid expenses) are classified as what:
Assets from prepayments of future expenses.
List the four steps in processing transactions.
(1) Identify transactions and source documents, (2) Analyze using the accounting equation, (3) Record journal entry, (4) Post to ledger.
Explain how the income statement and statement of retained earnings are connected.
Net income from the income statement is carried over to the statement of retained earnings to calculate ending equity.
Explain the difference between liquidity and solvency.
Liquidity = ability to meet short-term obligations; Solvency = ability to meet long-term obligations.