Accounting Chapters1-3

Stockholders' Equity

The total amounts invested and reinvested in the business by its owners.

A = L + SE; Debits = Credits

The two equalities in accounting that aid in providing accuracy.

Relevance

A feature of financial information that allows it to influence a decision.

Unearned Revenue

A liability account used to record the obligation to provide future services or return cash that has been received, before revenues have been earned.

Prepaid Expenses

A type of asset account used to record the benefits obtained, when cash is paid before expenses are incurred.

Transaction

An exchange or event that has a direct and measurable financial effect.

Accounts Receivable

Asset/Balance Sheet

Cash

Asset/Balance Sheet

Revenues

Earned by selling goods or services to customers.

Income Tax Expense

Expense/Income Statement

Selling and Administrative Expenses

Expense/Income Statement

Comparability

Financial information that can be compared across businesses because similar accounting methods have been applied.

Faithful Representation

Financial information that depicts the economic substance of business activities.

Income statement, balance sheet, statement of retained earnings, and statement of cash flows

Four periodic financial statements.

Accounts Payable

Liability/Balance Sheet

Notes Payable

Liability/Balance Sheet

Expense recognition principle

Record expenses when incurred in earning revenue.

Accrual basis accounting

Record revenues when earned and expenses when incurred.

Revenue recognition principle

Record revenues when earned, not necessarily when cash is received.

Cash basis accounting

Record revenues when received and expenses when paid.

Sales Revenue

Revenue/Income Statement

Retained Earnings

Stockholders Equity/Balance Sheet

Liabilities

The amounts owed by the business.

Unit of Measure

The assumption that states that results of business activities should be reported in an appropriate monetary unit.

Expenses

The costs of business necessary to earn revenues.

Separate Entity

The financial reports of a business are assumed to include the results of only that business's activities.

Assets

The resources owned by a business.

Journal entry

The results of transaction analysis in debits-equal-credits format.