Ch 2 & 3 Flashcards
What is a business transaction
Any financial event that changes the resources of a firm
An owner’s financial interest is called…
Equity or capital
Accounts Payable is money a firm will…
…Owe to creditors
Accounts Receivable is money that is…
…owed to the firm.
The property that a business owns is called an
Asset
Any debt or obligation of a business is called a
Liability
What is a balance sheet?
The status of a firm’s assets, liabilities, and the owner’s equity.
What is the fundamental accounting equation?
Assets = Liabilities + Owner’s Equity
The inflow of money is called revenue. What is the outflow called?
Expense
A salary expense is written as a debit or a credit?
Debit
Withdrawals are funds taken from the business by the owner for personal use. They are not an expense. What are they?
A decrease in the owner’s equity.
What function does an income statement serve?
Shows the results of business operations for a specific period of time such as a month, quarter, or year.
What is on an income statement?
Revenue earned and expenses of doing business
Most business decisions are influenced by what type of statement?
Financial statement
What is the purpose of a T account?
To analyze transactions
What side of a T account is Debit?
Debit is always on the left. Credit is on the right.
Is prepaid rent an asset or an expense
An asset
When an asset increases, do you record it as a debit or a credit?
Debit
When a liability increases, do you record it as a debit or a credit?
Credit
How is revenue increased?
Cash payments and accounts receivable
Expenses decrease the owner’s equity. Which side of the T account do you record expenses?
The LEFT side. Debit.
Accountants do not use the terms “left or right side”. The correct term is what for the sides?
Debit and credit
A statement that tests the accuracy of total debits and credits after transactions have been recorded is called what?
Trial Balance
What is a chart of accounts?
List of all accounts used by a business
Accounts that continue with a balance on the balance sheet at the end of an accounting period and move into the next period are called what?
Permanent accounts
What are accounts called that do NOT move forward into the next period?
Temporary or nominal accounts.
What two accounts appear on an income statement?
Revenue and expense
Which of these accounts is not a liability?
Accounts Payable, Equity, Supplies
Supplies
Which of these accounts is not an asset?
Accounts Receivable, Revenue, Cash
Revenue
