Accouting Chapter 2

liability

something owed to another business entity

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

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

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

notes payable

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

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

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, owner's equity on a specific date

statement of financial position

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

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

input

business transactions provide the necessary input for the accounting information system

accounting equation

consists of three basic accounting elements: Assets = Liabilities + Owner's Equity

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

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

revenues

the amount a business charges customers for products sold or services performed

owner's equity

the amount by which the business assets exceed to 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

output

the financial statements are the output of the accounting information system

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