Chapter 2 - Accounting for Business Transactions Flashcards
Cash
ASSET
A company’s cash balance
Accounts receivable (AR)
ASSET
Held by a seller; promises of payment from customers to sellers. AR are increased by credit sales
Note receivable (NR)
ASSET
Held by a lender; a borrower’s written promise to pay the lender a specific sum of money on a specific future date.
Prepaid accounts (or expenses)
Assets that arise from prepayment of future expenses.
Ex: prepaid insurance and prepaid rent
Accounts payable (AP)
LIABILITY
Held by a buyer; a buyer’s promise to pay a seller later for goods or services received
Notes payable (NP)
LIABILITY
Held by a borrower, a written promissory note to pay a future amount on a future date
Unearned revenue
LIABILITY
A liability to be settled in the future when a company delivers its product or service; when a customer pays in advance for product or service
Accrued liability
LIABILITY
Amounts owed that are not yet paid. Examples are wages payable, taxes payable, and interest payable.
Common stock
EQUITY
When an owner invest in a company in exchange for stock, the company increases both assets and equity.
Dividends
EQUITY
When a company pays dividends, it decreases both company assets and total equity
Revenue
Amounts received from sales of products and services to customers.
Revenue increases equity.
Expenses
Costs of providing goods and services.
Expenses decrease equity
The left side of an account is called the _____ side. The right side is called the ________ side.
debit; credit
Debt ratio
A measure of the risk associated with liabilities. Debt ratio = total liabilities / total assets.
When evaluating companies, the higher the debt ratio, the greater the risk in lending
