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chapter 2
Information
Processing
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check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Understand the need for accounts, and recognize that a collection of accounts comprises the general ledger.
Be able to construct and "operate" a running balance form of account.
Know the "debit-credit" rules!
Note the importance of source documents.
Know that the journal is the book of original entry, into which transactions are journalized in chronological order.
What is the purpose of a trial balance?
Outline the accounting steps that lead to the preparation of a trial balance.
If a trial balance is in balance, is it necessarily correct?
Appreciate the benefits of a computerized record keeping system.
Know what a T-account is and how it can be used.
Be able to explain what a chart of accounts is and how it is used.
Note that most of this chapter is devoted to the details of transaction processing (journalizing and posting). Spend ample time now to be sure that you are comfortable with the process. Time spent now will make your life much easier as you progress in your studies. In short, a little extra time on this chapter will save you plenty time and trouble later.
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| account | A record that is kept for each asset, liability, equity, revenue, expense, and dividend component of an entity |
| chart of accounts | A listing of the accounts of an entity, along with any identification coding |
| control account | The total of all subcomponent account records for an account; e.g., the sum of all individual accounts receivable |
| credit | The nature of an action to an account to indicate an increase (liabilities, equity, and revenue) or decrease (assets, expenses, and dividends); usually right-justified in an entry |
| debit | The nature of an action to an account to indicate an increase (assets, expenses, and dividends) or decrease (liabilities, equity, and revenue); usually left-justified in an entry |
| general ledger | A record of the accounts comprising financial statements, and their respective balances |
| journal | A chronological listing of the transactions and events of an organization, in debit/credit format |
| journalizing | The process of recording transactions and events into the journal |
| posting | The process of transferring journal entry effects into the respective general ledger accounts |
| source document | A document evidencing a transaction or event and potentially providing for the initiation of a journal entry |
| subsidiary account | A subcomponent account record providing individual balance details; e.g., the record for one customer out of a group of customers comprising all accounts receivable |
| T-account | An abstract representation of an account, with the left side of the "T" representing debits and the right side credits |
| trial balance | A listing of account balances from the ledger, used to test the equality of debits and credits |