Book 1, Chapter 2 - Chart Of Accounts Flashcards
Accounting equation
Assets = Liabilities + Equity
Current assets
What the company owns and expects to use in the next 12 months, eg, accounts receivable and inventory
Long-term assets
What the company owns and has a life span of more than 12 months, eg, buildings, furniture and equipment
Current liabilities
Debts the company must pay over the next 12 months, eg, accounts payable, interest payable and credit cards payable
Long-term liabilities
Debts the company over a period of time longer than the next 12 months, eg, mortgages and bonds
Equity
Owners claims against the companies net assets including money invested in the company, any money taken out of the company and any earnings reinvested in the company
Revenue
Sales of goods and services as well as revenue generated for the company by other means
Cost of goods sold
Direct costs involved in selling the companies goods or services
Expenses
Expenses related to running the business that aren’t directly tied to the sale of individual products or services
Journal entry position of debits
Left
Journal entry position of credits
Right
Debits increase what accounts?
Assets and expenses
Credits increase what accounts?
Liability, revenue and equity
Assets debit and credit effect
Debits add to assets
Credits subtract from assets
Expenses debit and credit effect
Debits add to expenses
Credits subtract from expenses
