Chapter 1 Flashcards
Assets must equal…
the sum of liabilities and owner’s equity
Basic Acct Equation
Assets= Liabilities + Owner’s Equity
Assets
resources a business owns
Liabilities
claims against assets– existing debts and obligations
These can be considered liabilities
- accounts payable
- note payable
- salaries and wages payable
- sales and real estate taxes payable
Creditors
all of the persons or entities to whom the business owes money
Owner’s Equity
ownership claim on total assets
Investments by owner
are the assets the owner puts into the business
Investments by owner are recorded where
owner’s capital
Revenues
gross increase in owner’s equity resulting from business activities entered into the purpose of earning income
Common sources of revenue
sales, fees, services, commissions, interest, dividends, royalties, and rent
Drawings
an owner withdrawal of cash or other assets for personal use
Drawings decrease what…
owner’s equity
Expenses…
the cost of assets consumed or services used in the process of earning revenue
Expenses _________ owner’s equity that results from operating the business
decrease
Expanded Equations
Assets= Liabilities + (Owner’s Capital- Owner’s Drawings + Revenue- Expenses)
Transactions…
a business’s economic events recorded by accountants
External transactions…
involves economic events between the company and some outside enterprise
Internal transaction…
are economic events that occur entirely within one company
Investment by Owner
results in an equal increase in assets and owner’s equity
Purchase of Equipment for Cash
results in an equal increase and decrease in total assets, though the composition of assets changes
Purchase of Supplies on Credit
purchase on account (a credit purchase)
Services Provided for Cash
represents principle revenue-producing activity
Purchase of Advertising on Credit
results in an increase inn liabilities and a decrease in owner’s equity
- specific categories involved are accounts payable and expenses
