The Accounting Equation
What is the basic accounting equation?
Assets = Liabilities + Equity
In which accounts do you record debits?
Assets and Expenses
What is the purpose of bookkeeping?
To record financial transactions of a business.
What is the purpose of a journal entry?
To record individual transactions.
Define the term "credit" in accounting.
An entry on the right side of an account.
If assets increase, what happens to equity in the accounting equation?
Equity increases.
What type of account is increased with a credit?
Liability or Equity
Name the two main types of bookkeeping systems.
Single-entry and Double-entry.
Define "posting" in the context of a journal.
Transferring information from the journal to the ledger.
Explain the concept of "posting" in bookkeeping.
Transferring information from the journal to the ledger.
Define liabilities in the context of the accounting equation.
Obligations or debts owed by the business.
When do you use a debit to decrease an account?
In revenue and equity accounts.
Explain the term "chart of accounts."
A list of all accounts used by a company.
Why is it important to number journal entries?
To keep track of transactions and locate them easily.
Define the term "journaling" in accounting.
The process of recording transactions in a journal.
What happens to the accounting equation if liabilities decrease?
Assets or equity must also decrease.
What is the normal balance of a liability account?
Credit
What is the difference between a journal and a ledger?
A journal records transactions chronologically, while a ledger organizes them by account.
Explain the term "compound journal entry."
A journal entry that involves multiple accounts.
Who is responsible for preparing and analyzing financial records in a business?
An accountant.
How does an increase in owner's equity affect the accounting equation?
Either an increase in assets or a decrease in liabilities.
If an expense is debited, what happens to the equity?
Equity decreases.
Why is accuracy important in bookkeeping?
Inaccuracies can lead to financial mismanagement and legal issues.
How does a correcting entry differ from a regular journal entry?
Correcting entries fix errors in previous entries.
What is the primary purpose of a trial balance in accounting?
To ensure that debits equal credits in the ledger.