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Accounts |
are titles given by account-ants to record the effects of increases and decreases in specific asset, liability, owner’s equity, revenue, and expense items. The cumulative effects of trans-actions are summarized by the balances in the various accounts |
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Chart of Accounts |
is a list of all accounts used by a company, including a unique number which identifies its account type an location in the ledger. Example" Asset accounts are assigned numbers in the 100’s, Liabilities in the 200’s, Owner’s Equity in the 300’s, Revenues in the 400’s, & Expenses in the 500’s. |
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T Accounts |
are a simplified account form used to show the effects of trans- actions on an account. They appear as the capital letter "T". |
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Debit |
is the left side of any account and is abbreviated DR. Debits are used to record increases in asset & expense accounts and decreases in liability, owner’s equity, & revenue accounts. Asset, expense accounts & the owner’s drawing account normally have Debit balances since that is the way they are increased. |
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Credit |
is the right side of any account and is abbreviated CR. Credits are used to record increases in liability, owner’s capital, & revenue accounts and decreases in asset & expense accounts. Liability, revenue & the own-er’s capital account normally have Credit balances since that is the way they are increased. |
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Simple Entry |
is a journal entry that only involves two accounts: a debit to one account & a credit to another account. |
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Compound Entry |
is a journal entry that involves three or more accounts. There may be debits (or credits) to two (2) accounts and a credit (or debit) to only one (1) account, but the total amount of the debits in a transaction must always be equal (=) to the total amount of the credits. |
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General Journal |
is the "Book of Original Entry" where a transaction is first recorded in terms of debits and credits. Transactions are recorded in chronological order by their date of occurrence in the General Journal. Debits are recorded before Credits in each transaction. A brief explanation may describe the transaction. |
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General Ledger |
is a loose leaf book which contains all the asset, liability, owner’s equity, revenue, and expense accounts used by a business. Each account in the General Ledger tracks that account’s transactions and its balance. |
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Posting |
is the processing of transfer- ing the amounts in the General Journal to their respective accounts in the Gen-eral Ledger for the purpose of updating the balances of the ledger accounts. |
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Trial Balance |
is a list of all acc-ounts & their balances at a point in time. The Trial Balance verifies that total debits equal (=) total credits. The acc-ounts listed have their normal balances: Asset, Expense, & the Owner’s Drawing accounts have Debit balances while Liability, Revenue, & the Owner’s Cap-ital accounts have credit balances |
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Transposition Error |
is a common accounting mistake where the order of digits in a number are reversed or switched. For example, 47 is mistak-enly written as 74. |
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Slide Error |
is a common accounting mistake where a zero (0) is added to or omitted from the digits in a number. For example, $74.00 is mistakenly written as $740.00 or $7.40. A Slide Error results from a misplaced decimal point. |
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For All Asset, Drawing, and Expense Accounts: |
DEBITS are used for INCREASES in an account & CREDITS are used for DECREASES in an account. *NOTE: The Balance in these accounts is the same as the way they are Increased (Debit)* |
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For all Liability, Capital, and Revenue Accounts: |
DEBITS are used for DECREASES in an account & CREDITS are used for INCREASES in an account. *NOTE: The Balance in these accounts is the same as the way they are Increased (Credit)* |
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Accounts Receivable |
Is an ASSET Account. Debit for increases in Asset. Credit for Decreases in Asset. Example: Debit Transaction – Sales to Customers on their accounts Credit Transaction – Collections from Customers on their accounts Normal Debit Balance (Because Debit is increase here) *Corresponding Credit would be Revenue Account (Such as service income)* *Corresponding Debit would be Asset Account (Cash)* |
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Accounts Payable |
Is a LIABILITY Account. Debit decreases for Liability. Credit Increases in Liability. Example: Debit Transaction – Payment to vendors on your account. Credit Transaction – Purchases from vendors on your account. Normal Credit Balance (because Credit is Increase here). *Corresponding Credit would be to the Asset Account (cash)* *Corresponding Debit would be to the Asset Account (Equipment) or an Expense like utilities* |
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