Chapter 2: Accounting For A Service Business Terms

Asset

An item that is owned by a business and will provide future benefits.

Accounts Receivable

An amount owed to a business by its customers as a result of the sale of goods or services.

Business Transaction

An economic event that has a direct impact on the business.

Accounts Payable

An unwritten promise to pay a supplier for assets purchased or services received.

Capital

Another term for owner's equity, the amount by which the business assets exceed the business liabilities.

Net Worth

Another term for owner's equity, the amount by which the business assets exceeds the business liabilities.

Notes Payable

A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.

Statement of Financial Condition

Another name for the balance sheet, which reports assets, liabilities, and owner's equity on a specific date.

Statement of Financial Position

Another name for the balance sheet, which reports assets, liabilities, and owner's equity on a specific date.

Profit and Loss Statement

Another name for the income statement, which reports the profitability of business operations for a specific period of time.

Operating Statement

Another name for the income statement, which reports the profitability of business operations for a specific time.

Account Title

Provides a description of the particular type of asset, liability, owner's equity, revenue, or expense.

Withdrawals

Reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

Balance Sheet

Reports assets, liabilities, and owner's equity on a specific date. It confirms that the accounting equation is in balance.

Income Statement

Reports the profitability of business operations for a specific period of time.

Accounting Equation

The accounting equation consists of the three basic accounting elements: Assets=Liabilities + Owner's Equity.

Owner's Equity

The amount by which the business assets exceed the business liabilities.

Net Loss

The excess of total expenses over total revenues for the period.

Net Income

The excess of total revenues over total expenses for the period.

Liquidity

A measure of the ease with which an asset will be converted to cash.

Account

A separate record used to summarize changes in each asset, liability, and owner's equity of a business.

Liability

Something owed to another business entity.

Revenues

The amount of a business charges customers for products sold or services performed.

Expenses

The decrease in assets as a result of efforts to produce revenues.