definitions

Question 1

Creditor

Answer 1

someone that owes you money

Question 2

financial position

Answer 2

summarized in the balance sheet. shows a companies assets, liabilities, and owners equity

Question 3

personal net worth

Answer 3

financial value of what they own

Net Worth = Assets - Liabilities

Question 4

balance sheet

Answer 4

financial statement that shows a company’s financial position at a specific point in time

Assets = Liabilities - Owners Equity

Question 5

liquidity order

Answer 5

the order in which current assets are listed on the balance sheet. it is the order in which those assets can be converted into cash

Question 6

bookkeeping

Answer 6

the process of recording and maintaining a companys financial transactions

Question 7

purpose of accounting

Answer 7

to provide financial information for decision making

Question 8

maturity date

Answer 8

the order in which liabilities are listen on the balance sheet

Question 9

business entity principle

Answer 9

each business is considered a seperate unit. the financial data for a business must be kept separate from the owners personal financial data.

Question 10

cost principle

Answer 10

assets are shown on the balance sheet at the cost of their acquisition or construction

Question 11

business transactions

Answer 11

any financial activities or events that affect the financial position of a business

Question 12

accounting period

Answer 12

specific time frame used by a business to track and report its financial position.

the most common accounting periods are
fiscal year: 12 month period starting anywhere

calendar year: 12 month period from jan 1st to december 31st

Question 13

accounting standards

Answer 13

the rules and guidelines that govern how financial transactions should be reported

Question 14

public business

Answer 14

a company that has sold shares to the public (stock exchange)

Question 15

credit union

Answer 15

involves managing financial transactions like deposits, loans, and interest for member-owned financial institutions

Question 16

private business

Answer 16

privately owned and does not trade its shares on the public stock market

Question 17

fair value principle

Answer 17

uses the current fair market value of assets for financial reports

(selling something for what its worth today, not what you bought it for in the past)

Question 18

code of ethics

Answer 18

a set of moral principles and guidlines that govern the behaviour of individuals or organizations.

Question 19

account

Answer 19

a record that tracks financial transactions for a specific item

Question 20

ledger

Answer 20

a book or system where all financial transactions are recorded, organized by account

Question 21

double entry accounting

Answer 21

when recording transactions, the total of the debit amounts must always equal the total of credit amounts

Question 22

trial balance

Answer 22

proves the mathematical accuracy of the ledger. does NOT indicate that transactions were all correctly recorded as debits and credits

Question 23

revenue

Answer 23

the total amount of money a business earns from its services

Question 24

expense

Answer 24

the cost incurred by a business to produce goods or services

Question 25

net income

Answer 25

the amount of profit a business makes after all expenses have been subtracted. it shows the companys financial success

Question 26

net loss

Answer 26

occurs when expenses total is more than revenue total.

Question 27

income statement

Answer 27

financial report that shows a companys revenue, expenses, and net income or net loss

Question 28

time period principle

Answer 28

each company sets and defines an accounting periods. it may be a month, three months, a year, etc. the company consistently uses the same time period when it prepares its financial statements

Question 29

matching principle

Answer 29

the costs recorded in the expense accounts should be matched with the revenue of the same accounting period to determine the net income or net loss

Question 30

revenue recognition principle

Answer 30

revenue is recognized at the time the revenue is earned

Question 31

accrual basis of accounting

Answer 31

records revenue when its earned, whether that revenue is in the form of cash or credit granted to a customer. expenses are recorded only when cash is paid for ab expense. revenue is only recorded when cash is received for sales or other revenue sources

Question 32

journal

Answer 32

where all business transactions are initially recorded in chronological order.

Question 33

journalizing

Answer 33

the process of recording financial transactions in the general journal

Question 34

posting

Answer 34

the process of transferring journal entries from the general journal to the corresponding accounts in the general ledger

Question 35

chart of accounts

Answer 35

a list of accounts in a ledger and their account numbers

Question 36

opening entry

Answer 36

the first journal entry made in the accounting system at the beginning of a new accounting period.

Question 37

accounting cycle

Answer 37

is the process that companies use to identify, analyze, and record their financial transactions throughout an accounting period.

Question 38

principle of objectivity

Answer 38

requires that accounting records be based on objective evidence.

Question 39

source documents

Answer 39

prepared for every business transaction

Question 40

work sheet

Answer 40

a form that organizes the accounting data required for the preparation of financial statements