Formal Definitions Of Accounting Terms

Question 1

What is an Asset?

Answer 1

1. Be purchased at a cost that is measurable
2. Produce probable economic benefit in the future
3. Result from a past event
4. Be owned or controlled by the entity

Ex: Delivery truck can be asset for a bottling company

Question 2

What is a Liability?

Answer 2

1. It must impose an obligation on company’s resources in the future
2. Obligation has to be to another entity
3. Event that created the obligation must have occurred in the past

Question 3

What is Equity?

Answer 3

1) Residual interest in assets of an entity that remains after deducting its liabilities. Owner’s Equity = Assets - Liabilities
2) Resources of a business that belongs to owners.

Question 4

Examples Of Owner’s Equity

Answer 4

Common Stock, Preferred Stock, Retained Earnings

Question 5

Owner’s Equity gets impacted with

Answer 5

Revenue, Expenses, Gains, Losses, Contributions by owners

Question 6

What is Revenue?

Answer 6

Money or the right to receive money from providing goods and services to customers. Good and services must be central to the operations of the company.

Question 7

What are expenses?

Answer 7

Costs associated with providing goods and services to customers. Outflow of cash. goods and services must be central to the operations of the company. New machine purchase is NOT considered as an expense.