Chap 2

Question 1

Accounts payable

Answer 1

amounts a business must pay in the future

Question 2

accounts receivable

Answer 2

claims for future collection from customers

Question 3

Assets

Answer 3

property owned by a business

Question 4

Balance sheet

Answer 4

a formal report of a business’s financial condition on a certain date; reports the assets, liabilities, and owner’s equity of the business; assets = (vs) liabilities

Question 5

break even

Answer 5

a point at which revenue equals expenses

Question 6

business transaction

Answer 6

a financial event that changes the resources of a business

Question 7

capital

Answer 7

financial investment in a business; equity

Question 8

equity

Answer 8

an owner’s financial interest in a business

Question 9

expense

Answer 9

an outlaw of cash, use of other assets, or incurring of a liability

Question 10

fair market value

Answer 10

the current worth of an asset or the price the asset would bring if sold on the open market

Question 11

fundamental accounting equation

Answer 11

relationship between assets and liabilities plus owner’s equity

Question 12

income statement

Answer 12

a formal report of business operations covering a specific period of time; also called a profit and loss (P&L) statement or a statement of income and expenses; revenue into net income or net loss

Question 13

liabilities

Answer 13

debts or obligations of a business

Question 14

net income

Answer 14

the result of an excess of revenue over expenses

Question 15

net loss

Answer 15

the result of an excess of expenses over revenue; expenses exceed revenue

Question 16

on account

Answer 16

an arrangement to allow payment at a later date; “net 30”; also called a charge account or open-account credit

Question 17

owner’s equity

Answer 17

the financial interest of the owner of a business; also called proprietorship or net worth

Question 18

revenue

Answer 18

inflow of money or other assets that results from the sales of goods or services or from the use of money or property; also called income

Question 19

statement of owners equity

Answer 19

a formal report of changes that occurred in the owners financial interest during a reporting period; equity with net income/loss + less withdrawals + increase of capital

Question 20

withdrawals

Answer 20

funds taken from the business by the owner for personal use