"CLEP Financial Accounting," Vocabulary from Chapter 6

This list focuses on debits and credits.

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Full list of words from this list:

words only definitions & notes
  1. credit
    an accounting entry acknowledging income or capital items
  2. debit
    an accounting entry acknowledging sums that are owing
  3. income
    the amount of money one makes over a period of time
  4. summary
    a brief statement that presents the main points
  5. interim
    the time between one event, process, or period and another
  6. process
    a particular course of action intended to achieve a result
  7. balance
    the difference between the credit and debit of an account
  8. temporary
    not permanent; not lasting
  9. various
    considered individually
  10. prepare
    to make ready verbally for written or spoken delivery
  11. system
    an organized structure for arranging or classifying
  12. quarter
    a fourth part of a year; three months
  13. compare
    examine and note the similarities or differences of
  14. correspond
    be equivalent or parallel, in mathematics
  15. equivalent
    a person or thing comparable to another in value or measure
  16. remainder
    the number that remains after subtraction
  17. normal
    conforming with a standard, level, or type
    --accounts with debit normal balances are assets, withdrawal, and expenses.
    --accounts with credit normal balances are liabilities and income.
    --equity accounts normally have a credit balance, but when the company loses money, an equity account can be negative and have a debit balance.
    --contra accounts have a normal balance that is the opposite of their brother account.
  18. abnormal
    not typical or usual or regular
    If your answer on the CLEP test has an account with an abnormal balance, change your answer.
  19. error
    part of a statement that is not correct
    The CLEP exam may describe a posting error and ask whether the trial balance will catch the error. Rule: If the posted debits equal the posted credits, the trial balance will not catch the error. The types of errors a trial balance will catch are when a debit is not posted (balance will be off by that amount), or is posted as a credit (balance will be off by double that amount).
  20. mistake
    part of a statement that is not correct
    Withdrawal, expense, and income accounts have only an increase side. Unless you see the words "mistake," "adjust," or "close" in a CLEP question, debit all expense and withdrawal accounts, and credit all income accounts.
  21. specialize
    be specific about
    The withdrawal and expense accounts specialize in collecting the debits for the equity part of the equation. Income accounts specialize in collecting credits. These debits and credits explain why equity has gone down or up.
  22. equity
    difference between value of a property and claims against it
    Contra-equity accounts: the withdrawal and expense accounts increase with debits, but because debits make equity go down, these accounts decrease equity.
  23. principle
    a rule or standard especially of good behavior
    --The left side of every T-account is always the debit side, and the right side is always the credit side.
    --Debits make assets go up; credits make assets go down. For liabilities and equity accounts, debits and credits have the opposite effect. Since every business transaction must keep the accounting equation in balance, every debit on the asset side of the equation must be balanced by an equal credit on the liability/equity side, and vice versa.
  24. clue
    evidence that helps to solve a problem
    Memorize the patterns used to analyze the debits and credits of T-accounts. Know what the following phrases mean: debit cash, credit cash, debit liability, credit liability.
  25. formula
    a statement expressing some fundamental principle
    --debits = credits
    --asset accounts = liability accounts + equity accounts
    --equity beginning + net income - withdrawal = equity ending
Created on November 2, 2016 (updated December 13, 2016)

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