CHAPTER 2 Flashcards
What is a transaction?
Any event that has a financial impact on a business and can be measured reliably. These are always two-sided: Something is given and Something is received in return.
What is an account?
It is the record of all the changes in a particular asset, liability, or stock holders equity during a period.
What are common asset accounts?
- Cash: A company’s cash account includes money and a medium of exchange including the company’s bank account balances, paper currency, coins, checks.
- Account Receivable: Sometimes when a business sells goods or services, it doesn’t received cash in exchange for them. Instead, the business receives a promise for a future cash payment in a number of days.
- Notes Receivables: Promissory note
- Inventory 5. Prepaid Expenses 6. Film and Television Costs 7. Investments 8. Parks, Resorts
What’s a promissory note?
A written promise to pay a certain amount of money by a certain date, with interest.
What are common liabilities accounts?
- Accounts Payable: Accounts payable are the direct opposite of accounts receivable. When a company promises to pay a supplier.
- Notes Payable(borrowings): The notes payable account includes the amounts a company must pay because it signed notes promising to pay a future amount. This bears interest.
- Accrued Liabilities: Such as interested and salary payable are accrued liabilities. Income tax payable is another accrued liability.
What is an accrued liability?
It is a liability for an expense you have not yet paid.
What are the different stockholders equities for the different business types?
In a corporation, these claims are called stockholders equities, shareholders equities which include common stock, retained earnings and dividend accounts. In a proprietorship, there is a single equity account. In a partnership, each partner has a separate equity accounts.
What are common stockholders equity accounts?
- Common Stock: The common stock account shows the owner’s investment in the corporation. A company’s common stock is its most basic element of equity.
- Retained Earnings: The retained earnings account shows the cumulative net income earned by the company’s over its lifetime.
- Dividends: Dividends are optional; they are declared by the board of directors. The corporation would keep a separate account titled dividends, which indicates that the company’s retained earnings are reduced are Retained Earnings.
- Revenues: Revenues increase a stockholders equity. A company can use an many revenue accounts as it needs.
- Expenses: The cost of operating a business is called an expense. A business needs a separate account for each type of expense.
What is the T-Account?
An account can be represented by the letter T. Left is debit and right is credit.
How the type of account determines how record increases and decreases?
Asset: Increases in assets are recorded on the left (debit) side of the account. Decreases in assets are recorded on the right (credit) side. You receive cash and debit the Cash account. You pay cash and credit the Cash account. Conversely, increases in liabilities and stockholders’ equity are recorded by credits. Decreases in liabilities and stockholder’s equity are recorded by debits.
What is a journal? What are its three steps?
It is a chronological record that records transactions. Also known as the book of original entry.
- Specify each account affected by the transaction and classify each account by type.
- Determine whether each account is increased/ decreased by the transaction. Use the rules of debit and credit to increase or decrease each account.
- Record the transaction in the journal, including a brief explanation. The debit side is entered on the left margin and the credit side is indented to the right.
What is the ledger?
It is a grouping of all the T-Accounts, with their balances.
What is a Trial Balance?
It lists all accounts with their balances- assets first, and then liabilities and stockholders equity. The trial balance summarizes all the account balances for the financial statements and proves that the total of accounts with debit balances equals the total of accounts with credit balances.
