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Unit 2 · 13 lessons

The Accounting Cycle: Service Business

Follow one small business, Trillium Bike Repair, through a full fiscal year — from the first debit and credit to the post-closing trial balance.

  • 89 practice questions
  • 84 flashcards
  • 2 interactive lessons
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Lessons

  1. 1The Account, Debits, and CreditsEvery item on a balance sheet has its own account, and every account uses the same two-sided debit/credit structure to track increases and decreases.8 questions
  2. 2Double-Entry AccountingEvery transaction is an exchange of value, so every transaction must be recorded with equal debits and credits — never just one side.Interactive7 questions
  3. 3The Trial BalanceA trial balance lists every ledger account balance to prove the ledger's debits and credits are mathematically equal — but equality alone doesn't guarantee everything was recorded correctly.7 questions
  4. 4The Income StatementThe income statement measures whether a business earned a profit or a loss over a period of time by comparing revenue to expenses.7 questions
  5. 5Drawings and the Statement of Owner's EquityOwner's equity doesn't just sit still — it grows with new investments and net income, and shrinks with drawings and net losses, and the statement of owner's equity shows exactly how.7 questions
  6. 6The General JournalThe journal is where every transaction is first recorded, in date order, before anything is transferred into individual accounts.Interactive7 questions
  7. 7Posting to the LedgerPosting transfers each journal entry into its own account in the ledger, so a business can see a running balance for every account at any time.6 questions
  8. 8Source DocumentsEvery journal entry must be backed by a real piece of paper or its digital equivalent — the objectivity principle in action.6 questions
  9. 9The Work SheetA work sheet is a scratch-pad tool that organizes account data — including adjustments — before the formal financial statements are prepared.6 questions
  10. 10Adjusting EntriesAdjustments update account balances at the end of a period so revenue and expenses are recorded in the period they actually belong to, following the accrual basis of accounting.6 questions
  11. 11DepreciationDepreciation spreads the cost of a fixed asset over the years it's used, instead of expensing its full cost the moment it's purchased.8 questions
  12. 12Classified Financial StatementsA classified balance sheet groups assets and liabilities into meaningful categories, like current vs. fixed and current vs. long-term, so readers can judge a business's short-term health at a glance.6 questions
  13. 13Closing the BooksClosing entries zero out revenue, expense, and drawings accounts at period-end, rolling their effect into Capital and resetting the books for the next accounting period.8 questions