Ch. 1: The Accounting Equation Flashcards
Expenses
The costs of doing business, that is, the costs that must be incurred in order for an organization to generate revenue. A retail store must incur the expense of renting the store in order to operate the business.
Permanent Investment
An investment designated by management or the proprietor to remain with the company until the dissolution of the company.
Notes Receivable
Written promises, in the hands of the creditors, that serve as evidence of debts.
Capital
The ownership of assets of a business by the proprietor(s).
Exchange of Assets
The process resulting from an asset or assets being given up and another asset or assets being acquired. For example, the receipt of the asset office supplies for which the asset cash is exchanged.
Property, Plant, and Equipment
Assets that have a useful life of more than 1 year and are used in the continuing operations of the organization.
Cost Principle
The cost assigned to an asset, including the purchase price, transportation charges, installation charges, and any other costs associated with placing the asset into use by the organization.
Monetary Principle
An assumption made by the accounting profession that the dollar is a stable unit of value in measuring economic transactions.
Intangible Asset
An asset that cannot readily be seen or touched. Examples include copyrights, franchises, patents, and trademarks. Intangible assets have no physical substance, but are of value to the owners of the organization. This value is based on rights or privileges belonging to the owner.
Money Value
the value, expressed in monetary terms, of an item within the accounting environment. All assets, liabilities, and capital are expressed in monetary terms.
Investments
Assets that are not used in the operation of a business, and are not expected to be converted into cash within 1 year.
Asset
Anything that is owned and has money value.
Permanent Capital
The owner’s equity in a business organization that is not expected to change other than as a result of an increase or a decrease in the owner’s investment in the business.
Notes Payable
Written promises, in the hands of the makers, that serve as evidence of debts.
Business Entity Concept
The accounting principle that says a business is separate and apart from the individual who owns (or the individuals who own) it. The assets of the owner(s) should not be combined with the assets of the business.
Temporary Capital
Capital accounts that will be eliminated at the end of the accounting period. Examples include revenue, expenses, and proprietor’s drawing accounts.
Current Asset
An asset that can reasonably be expected to be used up or converted into cash or sold within 1 year or less.
Business Transaction
Any business activity that affects what a business owns or owes, as well as the ownership of the business.
Accounting Equation
The relationship between the assets, liabilities, and capital of a business organization. The equation states: Assets = Liabilities + Capital.
Profit
The excess revenue after expenses.
Cash
An asset consisting of coins, bills, money orders, checks, certificates of deposit, or treasury bills.
Ownership
The right to dispose of property as well as to determine its use.
Accounts Payable
A current liability for which an oral promise to pay, made to the creditor, serves as evidence.
Revenue
The receipt, from sales of a product or service, of assets such as cash or accounts receivable that will eventually have an effect on the owner’s equity.
Accounts Receivable
A current asset for which an oral promise to pay, made by the customer, serves as evidence.
Liabilities
Amounts due creditors and other interested parties; also, the ownership of certain assets of an organization by creditors. The ownership extends to the creditors’ right to collect what is due them before any distribution to the owners of the business.
Account
An individual record of specific items that a business owns (assets) and owes (liabilities), as well as a recognition of ownership (capital).
Accounting
The art of organizing, maintaining, recording, and analyzing financial activities.
Temporary Investment
Money or other assets that are lent by the proprietor and are expected to be returned to him or her by the business.
