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Accounting 101 ch 2

College Accounting Ch2

QuestionAnswer
Assets Items that are owned by a business and will provide future benefits.
Accounts Receivable The amount of money owed to the business by its customers as a result of making sales "on account" or "on credit".
Liabilities Something owed to another business entity. Debts or obligations of the business that can be paid with cash, goods, or service.
Business Entity An individual, association, or organization that engages in economic activities and controls specific economic resources.
Accounts Payable An unwritten promise to pay a supplier for assets purchased or services received. Making a purchase "on account" or "or credit".
Notes Payable Formal written promises to pay suppliers or lenders specified sums of money at definite future times. Loans.
Owner's Equity The amount by which the business assets exceed the business liabilities. Also known as net worth and capital.
Business Entity Concept Nonbusiness assets and liabilities are not included in the business entity's accounting records.
Accounting Equation Assets = Liabilities + Owner's Equity
Business Transaction An economic event that has a direct impact on the business.
An Account Separate record used to summarize changes in each asset, liability, and owner's equity of a business.
Account Titles A description of the particular type of asset, liability, or owner's equity affected by a transaction.
Revenues The amount a business charges customers for products sold or services performed.
Expenses The decrease in assets (or increase in liabilities) as a result of efforts made to produce revenues.
Net Income Happens when the total revenues exceed total expenses for the period. Also known as net profit.
Net Loss Happens when the total expenses exceed total revenues for the period.
Withdrawals or Drawing The owner taking cash or other assets out of the business for personal use and the result reduces owner's equity.
Accounting Period Concept The concept that income determination can be made on a periodic basis.
Fiscal Year Any accounting period of 12 months.
Income Statement Reports the profitability of business operations for specific period of time. Also known as Profit and Loss Statement.
Statement of Owner's Equity Reports beginning capital plus net income less withdrawals to compute ending capital.
Balance Sheet Reports a firm's assets, liabilities, and owner's equity on a specific date. Also known as Statement of Financial Position ot Statement of Financial Condition.
Liquidity A measure of the ease with which an asset will be converted to cash.
Output The financial statements are the output of the accounting information system.
Processing Recognizing the effect of transactions on the assets, liabilities, owner's equity, revenues, and expenses of a business.
Input Business transactions provide the necessary input for the accounting information system.
Created by: dengler
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