Chapter Two: Financial Statements and the Accounting System Flashcards
Cash:
A company’s cash balance.
Asset Accounts:
Cash, accounts receivable, notes receivable, prepaid accounts (or expenses), and supplies, equipment, buildings, and land.
Accounts Receivable:
Held by a seller; promise of payment from customers to sellers. Accounts receivable are increased by credit sales; often phrased as sales on account or credit.
Notes Receivable:
Held by a lender; a borrower’s written promise to pay the lender a specific sum of money on a specified future date.
Prepaid Accounts (or expenses):
Assets that arise from prepayment of future expenses.
Ex. prepaid insurance and prepaid rent.
More Assets:
Supplies, equipment, buildings, and land.
Liability Accounts:
Accounts payable, notes payable, unearned revenue, accrued liabilities.
Accounts Payable:
Held by a borrower; a written promissory note to pay a future amount at a future date.
Unearned Revenue:
A liability to be settled in the future when a company delivers its products or services. When a customer pays in advance for products or services, the seller records this receipt as unearned revenue.
Accrued Liabilities:
Amounts owed that are not yet paid.
Ex. wages payable, taxes payable, and interest payable.
Equity Accounts:
Common stock, dividends, revenue, and expenses.
Common Stock:
When an owner invests in a company in exchange for stock, the company increases both assets and equity.
Dividends:
When a company pays dividends, it decreases both the company’s assets and total equity.
Revenue:
Amounts received from sales of products and services to customers. Revenue increases equity.
Expenses:
Costs of providing products and services. Expenses decrease equity.
