Acct001_Chapter 1 Vocab

Expenses

Decrease equity (via net income) from costs of providing products and services to customers. Ex: employee time, use of supplies, advertising, utilities, and insurance fees.

Equity

(also called owner's equity or capital) refers to the claim of its owner(s)

Both public and private accounting

Accounting specialists in this area of accounting are highly regarded

Examples of liabilities:

An amount owed to a creditor The company obligations to provide assets, products or services to others A creditor's claims against the assets of a business

What is shown on the left side of the balance sheet?

Business assets: cash, supplies, and equipment

Examples of assets:

Cash, building, supplies, accounts receivable

Examples of Equity

Claims of the owner(s) on the assets of the business. It is the accumulated revenues and owner's investments minus the accumulated expenses and withdrawals since the company began. Equity is equal to assets minus liabilities.

Remember:

Each transaction and event leaves the equation in balance and that assets always equal the sum of liabilities and equity.

Statement of Cash Flows

Identifies the cash inflows and outflows over a period of time

Revenues

Increase equity (via net income) from sales of products and services to customers. Examples are sales of products, consulting services provided, facilities rented to others, and commissions from services.

Accounting equation (formula)

Liabilities +Equity

Three factors that must exist for a person to commit fraud include:

Opportunity Pressure Rationalization

Owner withdrawals

Outflows of resources such as cash and other assets that an owner takes from the company for personal use; they are included under the generic title Owner, Withdrawals.

Balance sheet

Reports the balance of assets, liabilities, and owner's equity at a point in time

Statement of Owner's Equity

Reports the changes in equity during a period of time

Income statement

Reports the revenues and expenses incurred by a business for a period of time

Net income (formula)

Revenues - Expenses

What statements explain how the accounting equation applies to businesses?

The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners. The equation applies to all monetary business transactions. The relation of assets, liabilities and equity is reflected in the equation. The equation states that Assets = Liabilities +Equity

Public Accounting

This area of accounting includes offering tax advice services and auditing services

What is shown on the upper right side of the balance sheet?

What the business owes to its creditors and any other liabilities

Owner investments cause a(n) _____ in owner equity and are entered directly in the Owner's _____ account.

increase; Capital

The order in which companies are making reports on their monetary (etc) status:

1. Income statement 2. Statement of owner's equity 3. Balance sheet 4. Statement of cash flows

Owner Investments

Inflows of resources such as cash and other net assets that an owner puts into the company; they are included under the generic title: Owner, Capital. Cash or other assets an owner puts into the business.

What appears on a balance sheet?

Supplies Equipment I.M. Greasy, Capital Account Payable Cash including: J. Brown

Private accounting

This area of accounting is where employees work for businesses

Accounts that are classified as liabilities:

Wages payable Taxes Payable Notes Payable Accounts payable

Liabilities

What a company owes to its non owners (creditors) in future payments, products, or services.

Account form

A presentation of the balance sheet: assets on the left and liabilities and equity on the right.

Report form

A presentation of the balance sheet: assets on top, followed by liabilities and then equity at the bottom.

Expanded Accounting Equation:

Assets= Liabilities + (Equity/ Owner capital - Owner withdrawals + Revenues - Expenses)