Chapter 2 Analyzing Transactions: The Accounting Equation Flashcards
is an individual, association, or organization that engages in economic activities
business enity
are items that are owned by a business
assets
businesses may also have an asset called
accounts receivable
represents something owned to another business entity
liabilities
is an unwritten promise to pay a supplier for assets purchased or serviced received
account payable
Formal written promises to pay suppliers or lenders specified sums of money are known as
notes payable
is the amount by which the business assets exceed the business liabilities
Owner’s equity
nonbusiness assets and liabilities are not included in the business entity”s accounting records
business entity concept
The relationship between the three basic accounting elements –assets, liabilities, and owners’s equity–can be expressed in the form of a simple equation known as the
accounting equation
is an economic event that has a direct impact on the business
business transaction
is a separate record use to summarize changes in each assets, liability, and owners’s equity of a business
account
provide a description of the particular type of asset, liability, or owner’s equity
account titles
represent the amount a business charges customer s for product sold or services preformed.
revenues
represent the decrease in assets(or increase in liabilities) as a result of a company’s efforts to produce revenues.
expenses
If total revenues are grater than total expenses for the period, the excess is the
net income
if total expenses are grater than total revenues for the period, for the period, the excess is a
net loss
The concept that income determination can be made on a periodic basis is known as the
accounting period concpet
any accounting period of 12 months is called 1
fiscal year
reduces owner’s equity as a result of the owner taking cash and other assets out of the business
withdrawals or drawings
Assets=Liabilities+
Owner’s Equity
reports a firm’s assets, liabilities, and owner’s equity on a specific date
balance sheet
The balance sheet is referred to as a
statement of financial position or statement of financial condition
business transactions provide to the necessary
input
recognizing the effect of these transactions on the assets, liabilities, and owner’s equity, revenue, and expeses of a business is the function
processing
The financial statement are the
output
