Chapter 2 Flashcards
What is the basic accounting equation?
Assets = Liabilities + Stockholders’ Equity
Define double-entry accounting.
Two accounts are effected during a transaction
What are assets?
a probable future economic benefit arising form a past transaction
What is a current asset and liability?
assets that will be used up or turned into cash with one year; a liability that will be paid off with cash or eliminated within on year
What is a liability?
a probable future sacrifice of economic benefits arising from a past transactions
What are the limits of voluntarily disclosure/how do you decide what should be recognized on the balance sheet?
What is recognized should be relevant to the company, as well as faithful.
What does it mean that a piece of economic information is recognized for accounting purposes?
When an a service has been complete or paid for.
What is the difference between an economic asset and an accounting asset?
Economic: money, something useful
Accounting: future economic benefit; arising from a past transaction
What is an example of an asset we WOULD NOT recognized on a balance sheet?
CEO brain power (it is relevant, but not reliable).
What is a journal entry?
a process in which we record and summarize transactions after they have been analyzed
_____ must equal _____
Debits must equal Credits
Summarize the steps to a journal entry:
1 - find the two accounts effected by the transaction
2- List the debited account first, and the indent the credited account below
3 - Add what element each account is, and whether it is going up or down.
TRUE OR FALSE
Does the fact that we do a journal mean that the information has been recognized?
TRUE
What does normal balance mean?
what makes an account go up
What are the normal balances for the accounts on a balance sheet?
Asset: Debit
Liabilities: Credit
Stockholders’ Equity: Credit
