Chapter 2 Terms Flashcards
Has future purchasing power. E.g.: Coins, currency, cheques, and bank account balances.
cash
Occur when products or services are sold on account or on credit. When a sale occurs on account or on credit, the customer has not paid cash but promises to pay in the future.
accounts receivable
A promise from someone outside the organization to pay an amount on a specific future date plus a predetermined amount of interest.
notes receivable
Supplies to be used in the future. If the supplies are used before the end of the accounting period, they are an expense instead of an asset.
office supplies
Items to be sold in the future.
merchandise inventory
Represents an amount paid in advance for insurance. The prepaid insurance will be used in the future.
prepaid insurance
Represents an amount paid in advance for rent that will be used in the future.
prepaid rent
Cost must be in a separate account from any building. Used over future periods.
land
Indirectly help a business generate revenue over future accounting periods since they provide space for day-to-day operating activities.
buildings
accumulates detailed information regarding the increases and decreases in a specific asset, liability, or equity item.
account
Books where the accounts are maintained.
ledger
cash, accounts receivable, notes receivable, office supplies, merchandise inventory, prepaid insurance, prepaid rent, land, buildings
asset accounts
accounts payable, wages payable, short-term notes payable, long-term notes payable, unearned revenues
liability accounts
An obligation to pay for an asset in the future. The purpose is to finance investing activities that include the purchase of assets like land, buildings, and equipment.
liability
Debts owed to creditors for goods purchased or services received as a result of day-to-day operating activities. (Do not involve interest)
accounts payable
Wages owed to employees for work performed.
wages payable
Debt owed to a bank or other creditor that is normally paid within one year. These involve interest.
short-term notes payable
Debt owed to a bank or other creditor that is normally paid beyond one year. These involve interest.
long-term notes payable
Payments received in advance of the product or service being provided. The business owes a customer the product/service.
unearned revenues
Net assets owned by the owners of a business
equity
Represents the investments made by owners into the business and causes equity to increase.
share capital
The sum of all net incomes earned over the life of the corporation to date, less any dividends distributed to shareholders over the same time period. Includes revenues, expenses, and dividends.
retained earnings
The left side records debit entries and the right side records credit entries. A teaching/learning tool to show increases and decreases in an account.
T-account
Asset is increased
record with debit
Asset is decreased
record with credit
Dividend is decreased
record with debit
Dividend is increased
record with credit
Expense is increased
record with debit
Expense is decreased
record with credit
Liabilities are increased
record with credit
Liabilities are decreased
record with debit
Share capital is increased
record with credit
Share capital is decreased
record with debit
Revenue is increased
record with credit
Revenue is decreased
record with debit
Equity is increased
record with credit
Equity is decreased
record with debit
Debits cause an office salaries expense to ___________.
increase
Determined by adding and subtracting the increases and decreases in an account.
account balance
A positive sum on the side on which increases occur.
normal balance
A list of accounts where each account is assigned both a name and a number.
chart of accounts
Begin with 1 on the chart of accounts
assets
Begin with 2 on the chart of accounts
liabilities
Begin with a 3 on the chart of accounts
share capital, retained earnings, and dividends
Begin with a 4 on the chart of accounts
revenue accounts
Begin with a 5 on the chart of accounts
cost of goods sold accounts or expense accounts if they don’t have cost of goods sold
Begin with a 6 on the chart of accounts
expense accounts, or blank if they don’t have cost of goods sold
Each transaction is recorded in at least two accounts where total debits always equal the total credits.
double-entry accounting
An internal document that lists all of the account balances at a point in time to help prove that the accounting equation is in balance. Total debits must equal total credits.
trial balance
The income statement is linked to what financial statement?
Statement of Changes in Equity because net income causes equity to change.
The statement of changes in equity is linked to what financial statements?
The balance sheet since the share capital and retained earnings on the changes in equity sheet are transferred to the balance sheet.
The balance sheet summarizes equity.
The income statement helps to give information for the statement of changes in equity too since net income causes equity to change.
A document that is used to chronologically record a business’s debit and credit transactions.
general journal (also known as journal, or book of original entry)
The process of recording a financial transaction in the journal.
journalizing
A debit and credit entry recorded in the journal.
journal entry
A record that contains all of the business’s accounts.
ledger (also known as general ledger, or book of final entry)
The process of transferring amounts from the journal to the matching ledger accounts.
posting
A formal variation of the T-account similar to what is used in electronic accounting programs.
ledger account
The general ledger is used as a ___________ for the subledgers (subsidiary ledgers).
control account
State the four first steps in the accounting cycle (usually 8 steps, but this is for beginners who don’t know about adjustment entries and closing entries)
- journalize: transactions are analyzed and journalized in the general journal I think
- post: transactions are summarized by account in the ledgers
- unadjusted trial balance: check debits = credits
- prepare financial statements: summarized transactions are communicated
