Chapter 2 Flashcards
Balance sheet accounts are arranged into how many categories?
3
Owner, Capital & Owner, Withdrawals are examples of what accounts?
Equity
What type of account are Accounts Payable & Note Payable?
Liabilities
Accounts Receivable, Prepaid Accounts, Supplies & Land are what type of account?
Assets
What is a record of increases & decreases in a specific asset, liability, equity, revenue or expense item?
Account
What is a list of all accounts a company uses not including account balances called?
Chart of Accounts
What is a record containing all accounts used by a company, including account balances?
General Ledger
What describes transactions entering an accounting system, such as a purchase order, sales receipt or check?
Source Document
What is a complete record of every transaction recorded?
Journal
Which accounts have a normal debit balance?
Assets, Withdrawals, Expenses
Which accounts have a normal credit balance?
Liabilities, Capital, Revenue
What are the starting points of financial statements?
Transactions & events
What type of account is Unearned Revenue?
Liability
Which accounts increase Equity?
Revenue & Owner’s Capital
Which accounts decrease Equity?
Expenses & Owner Withdrawals
What represents a ledger account & is used to show the effects of one or more transactions?
T-account
What increases liabilities & equity?
Credit
What is the 4-step process of Journalizing & Posting Transactions?
Identify, Analyze, Record & Post
What lists all ledger accounts & their balances at a point in time?
Trial Balance
Which financial statement reports revenues minus expenses incurred by a business over a period of time?
Income Statement
Which financial statement reports how equity changes over the reporting period from net income (or loss) & from any owner investments & withdrawals over a period of time?
Statement of Owner’s Equity
Which financial statement reports the financial position (types & amounts of assets, liabilities & equity) at a point in time?
Balance Sheet
What is the formula for Debt Ratio?
Total Liabilities / Total Assets
What evaluates the level of debt risk?
Debt Ratio
What does a higher debt ratio indicate?
A greater probability that a company will not be able to pay its debt in the future.
What broadly groups accounts into assets, liabilities & equity?
Unclassified Balance Sheet
What is a written promise of another entity to pay a specific sum of money on a specified future date to the holder?
Note Receivable or Promissory Note
Which asset account becomes expenses once expired & used?
Prepaid Accounts
What are customers & others who owe a company called?
Debtors
What are packaging & cleaning materials considered?
Store Supplies
What is the term for when an asset is used & wears down so its cost is gradually reported as an expense?
Depreciation
What are claims by creditors against assets?
Liabilities
Who are individuals & organizations that have rights to receive payments from a company?
Creditors
A note payable is different from an account payable because why?
It comes from a formal contract called a promissory note & requires interest.
What’s another term for accounts payable?
Trade Payables
What 2 words almost always identify liability accounts?
Payable & Unearned
What groups accounts into classifications (such as land & buildings into Plant Assets) & it reports current assets & liabilities before noncurrent assets & liabilities?
Classified Balance Sheet
What is the owner’s residual interest in the assets of a business after subtracting liabilities?
Equity
Which account are owner investments recorded in?
Owner Capital
What is the opposite of owner investments?
Withdrawals
What always increases equity?
Revenues
What always decrease equity?
Expenses
What is the left side of an account called?
Debit
What is the right side of an account called?
Credit
What terms by themselves do not mean increase or decrease?
Debit or Credit
What determines whether a debit or credit increases or decreases?
Account
What is it called when total debits exceed total credits?
Debit Balance
What is the term for when total credits exceed total debits?
Credit Balance
What is the transfer of journal entries to the ledger?
Posting
What does PR stand for?
Posting Reference (Identification Number)
A company that finances a relatively large portion of its assets with liabilities is said to have higher?
Financial Leverage
