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
