Bookkeeping

Special Terms:

Liability: An obligation that is owed by an organization: debts to other organization for merchandise or services; wages awed to employees; accrued (owed but not yet paid) taxes; and payments due on loans or mortgages.

Capital: The investment in an organization or business by its owner or owners. Other terms often used instead of capital are owners equity, often abbreviated OE, and proprietorship.

Account: A record of the changes and balances in the value of an individual item listen in the ledger (see next page) of an organization. An example of an asset account is the company’s furniture and fixtures, usually listed as one item since it would be impractical to list every desk and chair. Each account, usually abbreviated a/c, frequently has its own page in the organization’s ledger.

Double-entry: A method of bookkeeping in which the twofold effect of every entry is recorded, thus requiring two entries to record sash transaction. By recording both effects of each transaction, this system offers protection against error.

Single-entry: Any bookkeeping system that does not include the complete resulted of each transaction. It is usually used by small companies or to keep track of specific accounts: for example, a checkbook which only keeps a record of the cash balance.

Debit: An amount entered on the left-hand side of an account. Asset and expense accounts are increased by debiting, that is, by entering amounts in the left-hand column. Debitals usually abbreviated DR.

Credit: An amount entered on the right-hand side of an account. Liability, capital, end income accounts are creased by crediting, that is, by accounts in the right-hand column. Credit is usually abbreviated CR.

Journal: A book in which transactions are recorded. In double-entry bookkeeping, both sides of the transaction – both the debit and the credit side – are entered in journal.

Ledger: A listing of detailed accounts, such as a record comprising the accounts receivable of each customer. The general ledger is the book used to list all the accounts of an organization. Entries from all the journals are transferred to the ledger at regular intervals, usually monthly. This process is called posting. The ledger then serves as a summary of all the fiscal activity for that period.

To Foot: To add or total the amounts in a column.

Trial Balance: When all the transactions for a certain period have bin posted and footed, the debits should equal the credits. The test to see if this is so is called a trial balance.

Vocabulary Practice:

1. What is a liability? What are some examples of liabilities?

2. What does capital mean? What other terms are often used instead of capital?

3. What is an account? Give an example of an account. What abbreviation is commonly used for account?

4. What is double-entry bookkeeping? How does it differ from single-entry bookkeeping?

5. What is a debit? What kinds of accounts are increased by debiting? What abbreviation is commonly used for a debit?

6. What is a credit? What kinds of accounts are increased by crediting? How is it commonly abbreviated?

7. What is a journal? In double-entry bookkeeping, what is entered in the journal?

8. What is a ledger? What is the relationship of a journal to a ledger? What does posting mean?

9. What does to foot mean?

10. What is a trial balance?

Date: 2014-12-29; view: 1204