31 terms

College Accounting_Chapter 2

Analyzing Business Transactions
Trial Balance
A listing of every financial statement and its current balance.
Accounts Payable
Amounts a business must pay in the future.
Funds taken from a business by the owner for personal use.
Break Even
A point at which revenue equals expenses.
Statement of Owner's Equity
A formal report of changes that occurred in the owner's financial interest during a reporting period.
General Ledger
A book of accounts into which the data from journal entries is posted.
Accrual Basis
The process in which revenues & expenses are recorded when they are earned or incurred regardless of when cash is exchanged.
Business Transactions
A financial event that changes the resources of a firm.
Balance Sheet
A formal report of a business's financial condition on a certain date; reports the assets, liabilities, and owner's equity of the business.
Note Payable
A documented loan that requires period payments of principle and possible interest until the date of maturity.
Net Income
The result of an excess in revenue over expenses.
Accounts Receivable
Claims for future collection from customers.
An owner's financial interest in a business.
The process of recording transactions.
Fair Market Value
The current net worth of an asset or what the current asset would bring if sold at market value.
Temporary Accounts
Revenues, expenses and dividends that are closed into retained earnings at the end of an accounting period.
Net Loss
The result of an excess of expenses over revenue.
Income Statements
A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expense.
The timing difference that occurs when revenue is earned or an expense is incurred before cash is exchanged.
Fundamental Accounting Equation
The relationship between assets and liabilities plus the owner's equity.
Permanent Accounts
Assets, liabilities and owner's equity accounts that are NEVER closed.
Accounting Cycle
For steps that are completed every accounting period, which include, recording transactions, adjusting, preparing financial statements and closing temporary accounts.
On account
An arrangement to allow payment at a later date; also called a charge account or an open account credit.
A listing of all transactions during an accounting period. It is also includes what accounts are affected, the date, the amount and a brief description of the transaction.
Owner's Equity
The financial interest of the owner of the business; also called proprietorship or net worth.
The process of increasing or decreasing an account to its correct balance as of the balance sheet date.
The timing difference that occurs when cash is exchanged before revenue is earned or an expense is incurred.
Financial investment in a company; equity
Cash Basis
Non GAAP method that records revenue and expenses only when cash is exchanged. This method is seldom used today because it does not accurately reflect the financial position of the company.
Matching Principle
Requires that expenses are recorded in the same period s the revenue that they helped generate.
Revenue Principle
Specifies four criteria that must met for a company that follows GAAP to record revenue.