10 Intermediate Accounting multiple choice questions need some answers.

STUDY UNIT SIX

1. Abnormal balance – an account balance that is a debit balance when normally it is a credit balance or vice versa; for instance, when the cash account has a credit balance (rather than a debit balance) because the bank account is overdrawn.

2. Chart of accounts – listing of all the accounts for the company in an alphabetic, numeric, or other useful sequence. Every account in the general ledger is in the chart of accounts and every account in the chart of accounts is in the general ledger.

3. Control account – general ledger account that summarizes a subsidiary ledger’s transactions.

4. Credit – right side of a journal or ledger entry, or a T-account; increases liabilities, equity, and revenues; decreases assets and expenses.

5. Debit – left side of a journal or ledger entry, or a T-account; increases assets and expenses; decreases liabilities, equity, and revenues.

6. Double-Entry system – based on the principle of duality; every economic event is recorded with one or more debits and credits; total debits always equal total credits.

7. General ledger – primary ledger that contains all of the balance sheet and income statement accounts; visualize a collection of an entity’s T-accounts.

8. Ledger account form – an account form for which an account’s current balance is readily available; more detailed than a T-account.

9. Posting – process of transferring journal entries from a journal to the ledger; requires transfer of both the debits and credits from the journal entry to the affected accounts in the general ledger and the calculation of new account balances

1. In the ledger, locate the debit accounts named in the journal entry.

2. Enter the transaction identification information (the date and number reference for the journal entry).

3. Enter the amount of the debit in the debit column of the ledger.

4. Calculate the account balance and enter it in the appropriate balance column.

5. Repeat the first four steps for the credit side of the journal entry.

10. Subsidiary ledger – separate ledger used when large number of individual accounts with a common characteristic can be grouped together. An example is accounts receivable, which is usually made up of numerous receivables from various customers.

11. T-account – informal ledger account in the shape of a “T”

12. Trial balance – a listing of all account balances at a point in time used to verify whether total debits equal total credits

1. List each ledger account that has a balance; debit balances in the left column; credit balances in the right.

2. Add each column.

3. Compare the totals of the columns; debit column total must equal credit column total.