Account Classification (Module: 5 - 6) COMPLETE Flashcards
What is an asset?
The belongings of a business that:
-Carry value.
-Assist with business operations.
what is a liability?
The money/assets the business owes.
The type of asset that is kept for 12 or more is a…
Non - Current asset!
The type of asset kept for less than 12 months is a…
Current asset!
What kind of account is Stationary?
stationary is an expense account because it does not directly generate revenue but it is needed for the day to day operations of a business
What is Owner’s Equity?
The money that Is due to the owner of the business.
What causes an increase in Owner’s Equity?
Owners equity increases when the business gains an asset.
What happens to the owners equity when assets from the business are withdrawn by the owner?
The owners equity decreases, because less money is due to the owner.
Is trading stock a Current or Non current asset?
It is a current asset because it is usually kept for less than 12 months.
What is an expense?
Goods and/or services purchased that are needed to run a business but do not directly contribute to said businesses revenue.
What is the main difference between stationary and equipment and why?
Stationary is an expense while Equipment is an asset.
This is because even though stationary is needed to run a business, it does not directly assist in business operations.
Example: Water and electricity. All they do is keep the business functional and do not DIRECTLY contribute to the businesses income unless the said business.
Unlike an oven in a bakery which is a non - current asset that directly contributes and participates in acquiring revenue for the business in question.
Is cost if sales an expense or an asset and why?
Cost of sales is an expense Because like, wages it is a necessary cost to keep a business running, it accounts for the price of trading stock just as wages account for the price of employee services and it is not directly involved in the generation of income unlike trading stock or a bakery’s oven.
Simply put, it is the cost of trading.
