Chapter 1: Accounting Basics Flashcards
Understand the foundational concepts of accounting, including assets, liabilities, revenue, and expenses. This chapter provides the essential building blocks for financial literacy.
- What is an asset?
An asset is anything a business or individual owns that has value. Examples include cash, equipment, buildings, or even a car. For instance, if you own a laptop for work, it’s considered an asset because it has monetary value and can generate future benefits.
- What is a liability?
A liability is something you owe to others, like debts or obligations. For example, a loan you took out to buy a car is a liability. Businesses often have liabilities such as loans, unpaid bills, or wages owed to employees.
- What is revenue?
Revenue is the money earned from selling goods or providing services. For example, if you run a bakery and sell $500 worth of cakes in one day, that $500 is your revenue.
- What is an expense?
An expense is the cost incurred to generate revenue. For instance, paying for ingredients to bake cakes or utility bills for running a bakery are expenses.
- What is a prepaid expense?
A prepaid expense is an expense paid in advance for future use. For example, if you pay a year’s rent upfront, it’s recorded as a prepaid expense because the benefit (using the rented space) will occur over time.
- What is gross revenue?
Gross revenue is the total amount earned before deducting any expenses or costs. For example, if a store sells $10,000 worth of products in a month, that’s the gross revenue.
- What is net revenue?
Net revenue is the amount left after deducting returns, discounts, or allowances from gross revenue. For example, if your gross revenue is $10,000, but you issued $500 in refunds, your net revenue is $9,500.
- What is unearned revenue?
Unearned revenue is money received before providing a product or service. For instance, if a gym charges a customer for a year-long membership upfront, that payment is unearned revenue until the gym provides its services over time.
- What is deferred revenue?
Deferred revenue is another term for unearned revenue. It’s recorded as a liability until the service or product is delivered. For example, subscription services like Netflix often deal with deferred revenue since customers pay in advance.
- What is marginal revenue?
Marginal revenue is the additional income generated by selling one more unit of a product or service. For instance, if a bakery sells an extra loaf of bread for $5, that $5 is the marginal revenue from the additional sale.
