Introduction to Accounting
Statement of Owner's Equity
A company's net income amount appears on the Income Statement. It also appears on the
General Ledger
A complete set of all the accounts used by a business. The general ledger accumulates a complete record of the debits and credits made to each account as a result of entries made in the journal.
Journal
A day-by-day listing of the transactions of a business.
Notes Payable
A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.
Chart of Accounts
A list of all accounts used by a business.
Trial Balance
A list of all accounts, showing the title and balance of each account, used to prove that the sum of the debits equals the sum of the credits.
Trial Balance
A list used to prove that the totals of the debit and credit balances in the ledger accounts are equal.
Liquidity
A measure of the ease with which an asset will be converted to cash.
increase an asset and decrease an asset
A purchase of a new computer for cash will:
Account
A separate record used to summarize changes in each asset, liability, and owner's equity of a business.
Double-entry Accounting
A system in which each transaction has a dual effect on the accounting elements.
Accounting
A system of gathering financial information about a business and reporting this information to users
Partnership
A type of ownership structure in which more than one person owns the business.
Sole proprietorship
A type of ownership structure in which one person owns the business.
Corporation
A type of ownership structure in which stockholders own the business. The owners' risk is usually limited to their initial investment, and they usually have very little influence on the business decisions.
$450 credit.
Accounts Payable had a normal starting balance of $600. There were debit postings of $350 and credit postings of $200 during the month. The ending balance is:
True
After every business transaction is correctly recorded and reported, the accounting equation will be in balance.
decrease an asset, decrease owner's equity
Alex takes $5,000 in cash out of his business. Recording this transaction will:
False
An account payable is a formal written promise to pay a supplier or lender at some future time.
General Ledger Account
An account with columns for the debit or credit transaction and columns for the debit or credit running balance.
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.
Business Entity
An individual, association, or organization that engages in economic activities and controls specific economic resources.
Asset
An item that is owned by a business and will provide future benefits.
Accounts Payable
An unwritten promise to pay a supplier for assets purchased or services received.
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.
Operating Statement
Another name for the income statement, which reports the profitability of business operations for a specific period of time.
Profit and Loss Statement
Another name for the income statement, which reports the profitability of business operations for a specific period of time.
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 exceed the business liabilities.
Fiscal Year
Any accounting period of 12 months' duration.
True
Assets valued at $4,000 are equal to $1,500 in liabilities plus $2,500 in owner's equity. Liabilities are owed to creditors.
Summarizing
Bringing the various items of information together to determine a result.
Input
Business transactions provide the necessary input for the accounting information system.
increase an asset, increase owner's equity
Cash was received from a customer for services performed today. Recording the transaction will:
Posting
Copying the debits and credits from the journal to the ledger accounts.
True
If during the accounting period the assets increase by $1,000 and the liabilities increase by $300, the owner's equity must increase by $700 for the records to be in balance.
A withdrawal
If the owner of the business takes money out of the business for personal use, this is called:
False
If the revenues of the business are greater than the expenses, the income statement will report net loss for the accounting period.
the total dollar amounts on the debit and credit sides of an account.
In accounting, "footings" refer to:
Output
In the accounting process, financial statements are the:
False
It is a good idea to debit owner's capital accounts directly for expenses.
Analyzing
Looking at events that have taken place and thinking about how they affect the business.
Generally Accepted Accounting Principles
Procedures and guidelines developed by the Financial Accounting Standards Board to be followed in the accounting and reporting process
Account Title
Provides a description of the particular type of asset, liability, owner's equity, revenue, or expense.
Processing
Recognizing the effect of transactions on the assets, liabilities, owner's equity, revenues, and expenses of a business.
Withdrawals
Reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.
Debit
Rent Expense has a normal balance of:
Balance Sheet
Reports assets, liabilities, and owner's equity on a specific date. It is called a balance sheet because it confirms that the accounting equation is in balance.
Statement of owner's equity
Reports beginning capital plus net income less withdrawals to compute ending capital.
Income Statement
Reports the profitability of business operations for a specific period of time.
increase an asset, increase owner's equity
Services were performed for a customer, and the customer was billed for the work completed. Recording the transaction will:
Liability
Something owed to another business entity.
Classifying
Sorting and grouping similar items together rather than merely keeping a simple, diary-like record of numerous events.
Reporting
Telling the results of the financial information.
Balance Sheet
The Accounts Receivable account is found on what financial statement?
Balance Sheet
The Cash account is found on what financial statement?
Debit
The Office Equipment account has a normal balance of:
Income Statement
The Telephone Expense account is found on what financial statement?
Credit
The Victor, Capital account has a normal balance of:
False
The abbreviation for "debit" is "Dt."
Accounting Equation
The accounting equation consists of the three basic accounting elements: Assets = Liabilities + Owner's Equity.
Assets = Liabilities + Owner's Equity
The accounting equation is:
False
The accounting equation is: Assets = Liabilities - Owner's Equity.
Revenues
The amount a business charges customers for products sold or services performed.
Owner's Equity
The amount by which the business assets exceed the business liabilities.
Accounting Period Concept
The concept that income determination can be made on a periodic basis.
Business Entity Concept
The concept that nonbusiness assets and liabilities are not included in the business entity's accounting records.
Expenses
The decrease in assets (or increase in liabilities) as a result of efforts to produce revenues.
Balance
The difference between the footings of an account.
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.
Output
The financial statements are the output of the accounting information system.
expenses, drawing, revenues
The following accounts ONLY increase
Revenues, Expenses, Drawing
The following types of accounts make up owner's equity:
Business transactions
The information for the basic input phase of accounting comes from:
Book of Original Entry
The journal or the first formal accounting record of a transaction.
Debit Balance
The normal balance of asset, expense, and drawing accounts.
Credit Balance
The normal balance of liability, owner's equity, and revenue accounts.
increase assets, increase owner's equity
The owner makes an additional investment. This transaction will
Balance Sheet
The owner's Capital account is found on what financial statement?
Verify that the accounting equation balances
The purpose of the Balance Sheet is to:
Normal Balance
The side of an account that is increased.
Balance Sheet
The statement that shows the financial condition or the financial position of the business on a specific date is the:
Statement of Owner's Equity
The statement which reports the changes in the owner's equity for a specific time period is the:
Footings
The total dollar amounts on the debit and credit sides of an account.
Debit
To enter an amount on the left side of an account.
Credit
To enter an amount on the right side of an account.
Debit
Wages Expense has a normal balance of:
Drawing
Withdrawals that reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.
Merchandising Business
A business that buys products to sell.
Manufacturing Business
A business that makes a product to sell.
Service Business
A business that provides a service.
Interpreting
Deciding the meaning and importance of the information in various reports.
Recording
Entering financial information about events affecting the company into the accounting system.
Journalizing
Entering the transactions in a journal.
Balance Sheet
Equipment is found on what financial statement?
increase assets, increase liabilities
Equipment is purchased on account. This transaction will
False
Expenses either increase assets or decrease liabilities.