ACCOUNTING CHAPTER 2 REVIEW
1. Explain the accounting cycle.
2. Describe an account, its use, and its relationship to the ledger.
Account: detailed record of increases/decreases in a specific asset, liability, or equity item.
Use of accounts: they provide information for financial statements
Each account is recorded in the ledger
3. Define debits and credits and explain their role in double-entry.
Debit (left side of T-account)
Credit (right side of T-account)
Double-entry accounting: every transaction is recorder in at least 2 accounts (in debit and credit)
Equal debits and credits keep the accounting equation in balance
*Normal balance: the side of increases
4. Describe a chart of accounts and its relationship to the ledger.
Chart of accounts: list of all accounts used in the ledger by a company (accounts are usually
numbered)
5. Analyze the impact of transactions on accounts, record transactions in a journal and post
entries to a ledger.
Double-entry accounting allow to analyze each transaction’s effects on the accounts
Recording of transactions give record of the effects
Posting to a ledger provides the information to produce financial statements
6. Prepare and explain the use of a trial balance.
Use of trial balance: verify that the debit and credit account balances are equal (reveals errors)