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Flashcards from Principles of Accounting I Ch. 2


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Summarize the accounting process.
1. Analyze Transaction
2. Record Transaction
3. Post Transaction
What does it mean to analyze a transaction?
Look at actions and see what transactions are affected.
Look at source documents e.g. pay stubs, receipts, etc.
What is the accounting equation?
Assets = Liabilities + Owner Equity
Define asset.
Anything of value that is owned or controlled by a company for any future benefit.
Define liability.
Any amount that you owe someone.
Define equity.
owner's share of assets after liability is paid.
What is the difference between something that is "receivable" and something that is "payable"?
Anything that says "receivable" is an asset.
Anything that says "payable" is a liability.
Define note receivable.
Written document with a promise to pay a specific amount on a specific date.
Define prepaid account.
Something that is paid in advance ala prepaid rent, services, insurance, etc.
Paid for in advance but haven't gotten the use of it yet.
What are supplies considered until used?
Until supplies are used, they are considered assets.
What is a supplies expense?
the worth of used supplies.
Define note payable.
promise to pay a certain amount on a certain date.
What are the four things that can change an equity account?
4 things change the equity account:
1. Investment Capital (+)
2. Net income (+)
3. Net loss (-)
4. Withdrawals (-)
Define chart of accounts.
List of all the accounts in a company, given a numerical value.
What does a lower number mean in a chart of accounts?
Lower the number, the more liquidity an account has.
Define account ledger.
Summary of all activity in an account
Where are accounts found?
Accounts are found in the general ledger.
Define double entry accounting.
For every transaction, two accounts will be affected in opposite columns.
How does a debit or credit transaction affect the following accounts:
1. Assets
2. Liabilities
3. Capital
4. Withdrawals
5. Revenues
6. Expenses
look at notes for diagram
Explain what happens when office supplies are bought with $200 in cash.
look at notes for explanation.
Explain what happens in an account when an investment of 30,000 is made In cash?
look at notes
What happens in an account when $900 of debt is paid?
Define a normal balance of account.
What increases an account
Define trial balance.
Listing of accounts coming out of general ledger with balances
Define income statement.
Summary of return and expenses for a period of time.
Define Statement of Owner Equity.
Shows all amounts that will change equity for a period of time.
Define Balance Sheet.
List of assets, liabilities, and equity accounts at a certain point in time.
Explain what happens in the following scenarios:
1. Invest 70,00 cash and 30,000 in equipment.
2. Purchase supplies on credit for $280
3. Receive 7,800 for services

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