unit 1 Flashcards
The process of planning, recording, analyzing, and interpreting financial information
accounting
A planned process designed to compile financial data and summarize the results in accounting records and reports
accounting system
Financial reports that summarize the financial condition and operations of a business
financial statements
A formal report that shows what an individual owns, what an individual owes, and the difference between the two
net worth statement
Anything of value that is owned
asset
An amount owed
liability
The difference between personal assets and personal liabilities
personal net worth
The difference between assets and liabilities
equity
The principles of right and wrong that guide an individual in making decisions
ethics
The use of ethics in making business decisions
business ethics
A business that performs an activity for a fee
service business
A business owned by one person
proprietorship
A formal written document that describes the nature of a business and how it will operate
business plan
Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities
GAAP
Financial rights to the assets of a business
equities
The amount remaining after the value of all liabilities is subtracted from the value of all assets
owners equity
The equation showing the relationship among assets, liabilities, and owner’s equity
accounting equation
Any business activity that changes assets, liabilities, or owner’s equity.
transaction
A record that summarizes all the transactions pertaining to a single item in the accounting equation
account
The name given to an account
account title
The difference between the increases and decreases in an account
account balance
An account used to summarize the owner’s equity in a business
capital account
A person or business to whom a liability is owed
creditor
An increase in equity resulting from the sale of goods or services
revenue
A sale for which payment will be received at a later date
sale on account
The cost of goods or services used to operate a business
expense
Assets taken from the business for the owner’s personal use
withdrawal
Accounting is the language of business
true
A creditor would favor a positive net worth
true
The principles of right and wrong that guide an individual in making personal decisions is called business ethics
false
Keeping personal and business records separate is an application of the business entity concept
true
Generally Accepted Accounting Principles, GAAP, allows for flexibility in reporting
false
Recording business costs in terms of hours required to complete projects is an application of the unit of measurement concept
false
Assets such as cash and supplies have value because they can be used to acquire other assets or be used to operate a business
true
The relationship among assets, liabilities, and owner’s equity can be written as an equation
true
The accounting equation does not have to be in balance to be correct
false
When a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage
false
When items are bought and paid for later, this is referred to as buying on account
true
When cash is paid on account, a liability is increased
false
When cash is received from a sale, the total amount of both assets and owner’s equity is increased
true
The accounting concept Realization of Revenue is applied when revenue is recorded at the time goods or services are sold
true
When cash is paid for expenses, the business has more equity
false
If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance
false
When a company receives cash from a customer for a prior sale, the transaction increases the cash account balance and increases the accounts receivable balance
false
A withdrawal decreases owner’s equity
true
