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abnormal balance
account balance that is contrary to the expected normal balance of that account
record showing increases and decreases to assets, liabilities, and equity found in the accounting equation
accounting cycle
step-by-step process to record business activities and events to keep financial records up to date
book of original entry
journal is often referred to as this because it is the place the information originally enters into the system
chart of accounts
account numbering system that lists all the accounts a business uses in its day-to-day transactions
compound entry
more than one account is listed under the debit and/or credit column of a journal entry
conceptual framework
interrelated objectives and fundamentals of accounting principles for financial reporting
concept that if there is uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount
contra account
account that has a normal balance opposite of normal balance for the broad category to which the account belongs
contributed capital
owner’s investment (cash and other assets) in the business which typically comes in the form of common stock
cost principle
everything the company owns or controls (assets) must be recorded at its value at the date of acquisition
records financial information on the right side of an account
records financial information on the left side of each account
double-entry accounting system
requires the sum of the debits to equal the sum of the credits for each transaction
ending account balance
difference between debits and credits for an account
expanded accounting equation
breaks down the equity portion of the accounting equation into more detail to see the impact to equity from changes to revenues and expenses, and to owner investments and payouts
expense recognition principle
(also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated
full disclosure principle
business must report any business activities that could affect what is reported on the financial statements
general ledger
comprehensive listing of all of a company’s accounts with their individual balances
going concern assumption
absent any evidence to the contrary, assumption that a business will continue to operate in the indefinite future
record of all transactions
entering information into a journal; second step in the accounting cycle
monetary measurement
system of using a monetary unit by which to value the transaction, such as the US dollar
normal balance
expected balance each account type maintains, which is the side that increases
original source
traceable record of information that contributes to the creation of a business transaction
one operating cycle of a business, which could be a month, quarter, or year
takes all transactions from the journal during a period and moves the information to a general ledger (ledger)
prepaid expenses
items paid for in advance of their use
revenue recognition principle
principle stating that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided
separate entity concept
business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally
simple entry
only one debit account and one credit account are listed under the debit and credit columns of a journal entry
stockholders‛ equity
owner (stockholders‛) investments in the business and earnings
graphic representation of a general ledger account in which each account is visually split into left and right sides
time period assumption
companies can present useful information in shorter time periods such as years, quarters, or months
business activity or event that has an effect on financial information presented on financial statements
trial balance
list of all accounts in the general ledger that have nonzero balances
unadjusted trial balance
trial balance that includes accounts before they have been adjusted
unearned revenue
advance payment for a product or service that has yet to be provided by the company; the transaction is a liability until the product or service is provided
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