Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting > Accounting Chap 2 > Flashcards

Accounting Chap 2 Flashcards

1
Q

is an individual, association, or organization that
engages in economic activities and controls specific economic
resources.

A

business entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q
  1. Items owned by the business entity that will provide future
    benefits.
  2. Cash, merchandise, fixtures, machinery, and land are examples
    of assets.
A

Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

—money owed by customers of the business for sales made “on account” or “on credit”—are also assets.

A

Accounts receivable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Amounts owed to another business entity.

Accounts payable & notes payable are examples

A

Liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

an unwritten promise to pay a

supplier

A

Accounts payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

formal written promises to pay a supplier or lender

A

notes payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q
  1. The amount by which all assets exceed the business liabilities.
  2. Also called net worth, capital and/or proprietorship.
A

Owner’s Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The owner may have business assets/liabilities and nonbusiness assets/liabilities. According to the business entity
concept, nonbusiness assets/liabilities must not be included in the business entity’s accounting records.

A

The Accounting Equation

Assets = Liabilities + Owner’s Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The left side of the equation represents the assets. The right side of the equation shows where the money came from to buy the assets. When two elements are known, the third can always be calculated.

A

All transactions affect at least two accounts, which are separate
records used to summarize changes in each asset, liability, and owner’s equity of the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

is an exchange of at least two items of value; an event measured in dollars.

A

business transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

All transactions affect at least two accounts, which are separate records used to summarize changes in each asset, liability, and owner’s equity of the business.

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

provide a description of each type of account.

A

Account titles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Three basic questions to answer for each transaction:

A
  1. What happened?
  2. Which accounts are affected?
    a) Identify the accounts affected.
    b) Classify the accounts.
  3. How is the accounting equation affected?
    a) Determine which accounts increased or decreased.
    b) Ensure the accounting equation is still balanced.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Transaction (a):

Investment by owner

A
  1. An increase in an asset (e.g., Cash) is offset by an increase in owner’s equity (e.g., Jessica Jane, Capital).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Transaction (b):

Purchase of an asset for cash

A
  1. An increase in an asset (e.g., Delivery Equipment) is offset by a decrease in another asset (e.g., Cash).

Remember, Capital does not mean Cash.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Transaction (c):

Purchase of an asset on account

A
  1. An increase in an asset (e.g., Delivery Equipment) is offset by
    an increase in a liability (e.g., Accounts Payable).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Transaction (d):

Payment on a loan

A
  1. A decrease in an asset (e.g., Cash) is offset by a decrease in a liability (e.g., Accounts Payable).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The amount charged to customers for goods and services.

A

Revenues

19
Q

Revenue is not Cash

Separate revenue accounts may be used.

Revenues increase both assets and owner’s equity.

A

Revenue is recorded when earned through the sale of
a product or providing a service.

If cash is received as a result, the cash account is increased.

If not, another asset, Accounts Receivable, is increased.

20
Q

is the outflow of resources (decrease in assets or increase in liabilities) as a result of efforts made to produce revenues.

Wages earned by employees is a good example. If paid, the expense reduces an asset, Cash. If not paid, it increases
a liability, Wages Payable.

A

Expenses

21
Q

Expenses either decrease assets or increase liabilities.

Expenses reduce owner’s equity.

A

Main Purposes of recognizing an expense are to keep track of the amount and types of expenses incurred and to show the reduction in owner’s equity.

22
Q

If revenues are larger than expenses, the business has a

A

net income

23
Q

If revenues are smaller than expenses, the business has

a

A

net loss

24
Q

The concept that income determination can be made on

a periodic basis is the

A

accounting period concept

25
Q

Any accounting period for 12 consecutive months for

which business records are kept.

A

Fiscal year

26
Q

Amounts taken from the business by the owner for personal use.

A

Withdrawals or Drawing

27
Q

Withdrawals reduce assets.

Withdrawals reduce owner’s equity.

A

Supplies and insurance used up during this accounting period will be recognized as expenses.

28
Q

Transaction (e):

Delivery revenues earned in cash

A
  1. An increase in an asset (e.g., Cash) is offset by an increase in owner’s equity resulting from an increase in the revenue account (e.g., Delivery Fees).
29
Q

Transaction (f):

Paid rent for month

A
  1. A decrease in an asset (e.g., Cash) is offset by a decrease in owner’s equity resulting from an increase in an expense account (e.g., Rent Expense).
30
Q

Transaction (g):

Paid telephone bill

A
  1. A decrease in an asset (e.g., Cash) is offset by a decrease in
    owner’s equity resulting from an increase in an expense account (e.g., Telephone Expense).
31
Q

Transaction (h):

Delivery revenues earned on account

A
  1. An increase in an asset (e.g., Accounts Receivable) is offset by an increase in owner’s equity resulting from an increase in the revenue account (e.g., Delivery Fees).
32
Q

Transaction (i):

Purchase of supplies

A
  1. An increase in an asset (e.g., Supplies) is offset by a decrease in an asset (e.g., Cash).
33
Q

Transaction (j):

Payment of insurance premium

A
  1. An increase in an asset (e.g., Prepaid Insurance) is offset by a decrease in an asset (e.g., Cash).
34
Q

Transaction (k):

Cash receipts from prior sales on account

A 
1. An increase in an asset (e.g., Cash) is offset by a decrease in
an asset (e.g., Accounts Receivable).

The accounting equation in unchanged, an asset, cash, increases and another, accounts receivable, decreases an equal amount.

35
Q

Transaction (l):

Purchase of an asset on account making a partial payment

A
  1. An increase in an asset (e.g., Equipment) is offset by a

decrease in an asset (e.g., Cash) and an increase in a liability (e.g., Accounts Payable).

36
Q

Transaction (m):

Payment of wages

A
  1. A decrease in an asset (e.g., Cash) is offset by a decrease in owner’s equity resulting from an increase in an expense account (e.g., Wages Expense).
37
Q

Transaction (n):

Deliveries made for cash and on account

A
  1. An increase in two assets (e.g., Cash and Accounts Receivable) is offset by an increase in owner’s equity from an increase in a revenue account (e.g., Delivery Fees).
38
Q

Transaction (o):

Withdrawal of cash from business

A
  1. A decrease in an asset (e.g., Cash) is offset by a decrease in
    owner’s equity (e.g., Jessica Jane, Drawing) resulting from a withdrawal by the owner.
39
Q

The _____ to the financial statements answer three questions: Who?
What? When?

A

headings

40
Q

Reports the profitability of a business for a specific time period.

Sometimes called the profit and loss statement or operating statement.

Revenue – Expenses = Net Income or Net Loss.

A

Income Statement

41
Q

Reports the activities in the owner’s equity for a specific time period.

Investments and profits increase capital.
Withdrawals and losses decrease capital.

A

Statement of Owner’s Equity

42
Q
  1. Reports the assets, liabilities, and owner’s equity on a specific date.
  2. Sometimes called a statement of financial position or statement of financial condition.
  3. Assets = Liabilities + Owner’s Equity
A

Balance Sheet

43
Q

Guidelines for Preparing Financial Statements

  1. Standard formats should be used.
  2. Headings should be used on all statements.
  3. Single rules (lines) should be used to add or subtract numbers above the line; double rules (double underlines) indicate a total.
  4. Dollar signs are used at the top of columns and beneath single (subtotal) rules.
  5. Expenses may be listed from highest to lowest dollar amount.
  6. Assets are listed from most liquid to least liquid.
A

Overview of the Accounting Process (See Figure 2-4)
A. Input. Business transactions provide the necessary information for input.
B. Processing. Identifying, classifying, and determining how accounts are increased or decreased in business transactions.
C. Output. Recording the processed information on financial statements.

Accounting (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions