Chapter 2 Flashcards
What’s the definition of a transaction?
“A transaction is anything that has a financial impact on a company, whether positive or negative, and can be measured reliably.”.
True or false: income increases equity, while expenses decrease it.
True
Are pre-paid expenses an asset?
Yes.
What’s a liability?
An obligation to pay an individual or a company.
True or false: revenue decreases retained earnings, while expenses increase it.
False
True or false: debit increases an asset, while credit decreases it.
True
True or false: credit decreases liabilities and equity, while debit increases it.
False
True or false: credit decreases income and equity, while debit increases it.
False
True or false: debit increases dividends and expenses and increases equity, while credit does the opposite.
True
What does a “ledger” refer to?
A company’s T-accounts.
What’s the process of copying data to a ledger called?
“posting”.
What does a balance sheet show?
Assets, liabilities, and equity.
What does an income statement show?
Income and expenses.
All business transactions have at least two what?
Two effects on a company’s financial statement.
What does “the three-column account” method show?
Total debits, total credits, and balance.
Give examples of assets.
Cash, PPE, supplies, and pre-paid expenses.
Give examples of liabilities.
Interest payable, salaries payable, accounts payable, and loans.
Give examples of equity.
Salaries expense, service revenue, share capital, and retained earnings.
What does “the trial balance” show?
Whether total debits equal total credits.
True or false: if it’s not a company, a journal entry isn’t necessary.
True
What does an account do?
It records all changes in a company’s financial statement, i.e. assets, liabilities, and equity.
True or false: insurance is both an asset and a pre-paid expense.
True
