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Account, Journal Entry, Ledger Definitions Essential

Here you can find essential accounting definitions for topics around account, journal entry and ledger.

  • Account – A record of increases and decreases in specific asset, liability, or owner’s equity items.
  • Permanent (real) accounts – Accounts that relate to one or more accounting periods. Consist of all balance sheet accounts. Balances are carried forward to next accounting period.
  • Temporary (nominal) accounts – Accounts that relate only to a given accounting period. Consist of all income statement accounts and owner’s drawing account. All temporary accounts are closed at end of the accounting period.
  • Control account – An account in the general ledger that summarizes subsidiary ledger.
  • Journal – An accounting record in which transactions are initially recorded in chronological order.
  • Cash payments (disbursements) journal – A special journal that records all cash paid.
  • Cash receipts journal – A special journal that records all cash received.
  • Journalizing – The entering of transaction data in the journal.
  • Purchases journal – A special journal that records all purchases of merchandise on account.
  • Sales journal – A special journal that records all sales of merchandise on account.
  • Special journal – A journal that records similar types of transactions, such as all credit sales.
  • Ledger – The entire group of accounts maintained by a company.
  • Subsidiary ledger – A group of accounts with a common characteristic.
  • Chart of accounts – A list of accounts and the account numbers that identify their location in the ledger.
  • Double-entry system – A system that records in appropriate accounts the dual effect of each transaction.
  • Credit – The right side of an account.
  • Debit – The left side of an account.
  • Compound entry – A journal entry that involves three or more accounts.
  • General journal – The most basic form of journal.
  • General ledger – A ledger that contains all asset, liability, and owner’s equity accounts.
  • Normal balance – An account balance on the side where an increase in the account is recorded.
  • Posting – The procedure of transferring journal entries to the ledger accounts.
  • Simple entry – A journal entry that involves only two accounts.
  • 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.
  • Trial balance – A list of accounts and their balances at a given time.
  • Closing entries – Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent owner’s equity account, Owner’s Capital.
  • Post-closing trial balance – A list of permanent accounts and their balances after a company has journalized and posted closing entries.
  • Reversing entry – An entry, made at the beginning of the next accounting period, that is the exact opposite of the adjusting entry made in the previous period.
  • Classified balance sheet – A balance sheet that contains standard classifications or sections.
  • Correcting entries – Entries to correct errors made in recording transactions.
  • Current assets – Assets that a company expects to convert to cash or use up within one year.
  • Income Summary – A temporary account used in closing revenue and expense accounts.
  • Liquidity – The ability of a company to pay obligations expected to be due within the next year.
  • Long-term investments – Generally, (1) investments in stocks and bonds of other companies that companies normally hold for many years, and (2) long-term assets, such as land and buildings, not currently being used in operations.
  • Operating cycle – The average time that it takes to go from cash to cash in producing revenues.
  • Stockholders’ equity – The ownership claim of shareholders on total assets. It is to a corporation what owner’s equity is to a proprietorship.
  • Worksheet – A multiple-column form that may be used in making adjusting entries and in preparing financial statements.
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