Chapter 2- Recording and Planning in Business

Question 1

Define an Account

Answer 1

a place to record transactions that occur within a business

Question 2

what are the specific account categories?

Answer 2

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

Question 3

What are liabilities?

Answer 3

things that a company owes.

Question 4

What are assets?

Answer 4

things that a company owns

Question 5

What are Owner’s equity?

Answer 5

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

Question 6

what are current assets?

Answer 6

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

Question 7

what are noncurrent assets?

Answer 7

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

Question 8

What are current liabilities

Answer 8

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

Question 9

what are noncurrent liabilities?

Answer 9

debt obligations that will extend for longer than 12 months.

Question 10

what is Owner’s capital?

Answer 10

direct investments made into the company

Question 11

what is stockholder’s equity?

Answer 11

any equity that comes from the sale of stocks or bonds

Question 12

What is meant by double-entry accounting?

Answer 12

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

Question 13

What is a ledger?

Answer 13

a book that contains all the accounts

Question 14

what is the general ledger?

Answer 14

contains information on all the company accounts

Question 15

What is the subsidiary ledger?

Answer 15

contains information about specific individual accounts

Question 16

What is the chart of accounts?

Answer 16

a listing of all accounts that a company has

Question 17

what are the categories of accounts?

Answer 17

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

Question 18

What are asset accounts?

Answer 18

accounts that show what a company owns

Question 19

what are liability accounts?

Answer 19

accounts that show what a company owes

Question 20

what are owner’s equity accounts?

Answer 20

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

Question 21

what are revenue accounts?

Answer 21

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

Question 22

what are expense accounts?

Answer 22

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

Question 23

What is meant by the double-entry accounting system?

Answer 23

every business transaction is recorded in at least two accounts

Question 24

what is a debit?

Answer 24

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

Question 25

What is a credit?

Answer 25

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

Question 26

What are T accounts?

Answer 26

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

Question 27

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

Answer 27

debits on the left

credits on the right

Question 28

What is meant by transaction analysis?

Answer 28

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

Question 29

what is the extended accounting equation?

Answer 29

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

Question 30

What are dividends

Answer 30

money paid to investors as a return on their investments

Question 31

what is the present value?

Answer 31

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

Question 32

what is the present value equation?

Answer 32

PV = FV/(1+i)^n

Question 33

What is future value?

Answer 33

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

Question 34

what is the future value equation?

Answer 34

FV=PV*(1+1)^n

Question 35

what is a bond?

Answer 35

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

Question 36

How does market interest rate affect bonds?

Answer 36

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.

Question 37

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

Answer 37

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

Question 38

What is the present value of an annuity equation?

Answer 38

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

Question 39

What is an annuity?

Answer 39

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