Question

an account is a record of increases and decreases in a specific asset liability equity revenue or expense item true or false

Answer 1

Answer : True

Account

An account is a record of increases and decreases in a specific asset, liability, equity, revenue or expense item.

The Account

Debits and credits
Owner's equity relationships
Summary of debit/credit rules

Steps in the Recording process

Journal, Ledger, Posting and Chart of accounts

The Trial balance

Limitations
Locating errors
Use of dollar signs

Define debits and credits

Assets, drawings and expenses are increased by debits and decreased by credits. Liabilities, owner's capital and revenues are increased by credits and decreased by debits

Double-entry system

A system that records in appropriate accounts the dual effect of each transaction. Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Debits must equal Credits.

Debit

The left side of an account

Credit

The right side of an account

Debit balance

Debit amounts are greater than Credit amounts

Credit balance

Debit amounts are less than Credit amounts

Assets

Debits should exceed credits

Liabilities

Credits should exceed debits

Owner's Equity

Credit: Owner's investments and revenues increase owner's equity
Debit: Owner's drawings and expenses decrease owner's equity

Basic Equation

Assets = Liabilities + Owner's Equity

Expanded Basic Equation

Assets = Liabilities + Owner's Capital - Owner's Drawing + Revenues - Expenses

Recording process

1. Analyse each transaction
2. Enter the transaction information in a journal
3. Transfer the journal information to the ledger accounts

Business documents

Provide evidence of the transaction

Journal

An accounting record in which transactions are initially recorded in chronological order.

Journal contributions to recording process

The initial accounting record of a transaction is entered in a journal before the data are entered in the accounts.
A journal discloses in one place the complete effects of a transaction, provides a chronological record of transactions and prevents or locates errors because the debit and credit amounts for each entry can be easily compared.

Journalizing

The entering of transaction data in the journal

Simple entry

An entry that involves only two accounts, one debit and one credit

Compound entry

An entry that requires three or more accounts

Ledger

The entire group of accounts maintained by a company

General ledger

A ledger that contains all asset, liability and owner's equity accounts

Ledger in the recording process

The ledger provides the balance in each of the accounts as well as keeps track of changes in these balances

T-account

The basic form of an account

Three-column form of account

A form with columns for debit, credit and balance amounts in an account

Posting

Process of transferring amounts from the journal to the ledger accounts

Chart of accounts

Accounts and account numbers arranged in sequence in which they are presented in the financial statements

Trial Balance

A list of accounts and their balances at a given time

Limitations of a trial balance

1. a transaction is not journalized
2. a correct journal entry is not posted
3. a journal entry is posted twice
4. incorrect accounts are used in journalising or posting
5. offsetting errors are made in recording the amount of a transaction