Chapter 2- Recording and Planning in Business Flashcards

1
Q

Define an Account

A

a place to record transactions that occur within a business

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2
Q

what are the specific account categories?

A
  1. assets
  2. liabilities
  3. owner’s equity
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3
Q

What are liabilities?

A

things that a company owes.

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4
Q

What are assets?

A

things that a company owns

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5
Q

What are Owner’s equity?

A

the amount of money that company owners have invested in the business

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6
Q

what are current assets?

A

those assets that will be used up or sold within one year

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7
Q

what are noncurrent assets?

A

also called long term assets, are things that a business has that will not be used up or turned into cash within a year

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8
Q

What are current liabilities

A

bills or any other debt obligation that is due within one year

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9
Q

what are noncurrent liabilities?

A

debt obligations that will extend for longer than 12 months.

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10
Q

what is Owner’s capital?

A

direct investments made into the company

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11
Q

what is stockholder’s equity?

A

any equity that comes from the sale of stocks or bonds

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12
Q

What is meant by double-entry accounting?

A

for each transaction, at least two accounts will be affected.

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13
Q

What is a ledger?

A

a book that contains all the accounts

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14
Q

what is the general ledger?

A

contains information on all the company accounts

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15
Q

What is the subsidiary ledger?

A

contains information about specific individual accounts

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16
Q

What is the chart of accounts?

A

a listing of all accounts that a company has

17
Q

what are the categories of accounts?

A
  1. asset
  2. liability
  3. owner’s equity
  4. revenue
  5. expense accounts
18
Q

What are asset accounts?

A

accounts that show what a company owns

19
Q

what are liability accounts?

A

accounts that show what a company owes

20
Q

what are owner’s equity accounts?

A

accounts that show how much money company owners and stockholders have invested in the company.

21
Q

what are revenue accounts?

A

accounts that show the cash inflows of a company due to operations

22
Q

what are expense accounts?

A

accounts that show the cash outflows of a company due to operations

23
Q

What is meant by the double-entry accounting system?

A

every business transaction is recorded in at least two accounts

24
Q

what is a debit?

A

an entry that increases the assets and prepaid expense account balances and decreases a liability, expense, or equity account balance.

25
Q

What is a credit?

A

increases the balance in a liability, expense, or equity account balance and decreases the balance in an asset or prepaid expense account.

26
Q

What are T accounts?

A

visuals that accounting professionals use to see how accounts are affected by the debits and credits of business tranactions

27
Q

Which side of the T account are debits and credits recorded?

A

debits on the left

credits on the right

28
Q

What is meant by transaction analysis?

A

the act of examining a transaction to decide how it affects the accounting equation.

29
Q

what is the extended accounting equation?

A

Assets = liabilities = (revenue - (expenses + dividends))

30
Q

What are dividends

A

money paid to investors as a return on their investments

31
Q

what is the present value?

A

the amount of money today that is equivalent to a single payment or a stream of payments earned in the future, invested at a certain interest rate

32
Q

what is the present value equation?

A

PV = FV/(1+i)^n

33
Q

What is future value?

A

the future worth of an amount of money invested today, paying a certain interest rate

34
Q

what is the future value equation?

A

FV=PV*(1+1)^n

35
Q

what is a bond?

A

a promise to pay an amount back in the future that’s borrowed today>

36
Q

How does market interest rate affect bonds?

A

when market interest rate goes up, new bonds will be issued at a higher rate than existing bonds. this makes older bonds less attractive, so their present value does down.

37
Q

What is the relationship between bond prices and market interest rates?

A

there is an inverse relationship. When interest rate goes up, bond prices goes down.

38
Q

What is the present value of an annuity equation?

A

PV annuity = PMT * ((1-(1+i)^n)/i)

39
Q

What is an annuity?

A

A series of regular payments made over a period of time at a certain interest rate.