Accounting Basics
What is accounting?
Recording and tracking financial transactions of a business.
What is an asset?
Something a business owns.
What is the accounting equation?
Assets = Liabilities + Equity
What is revenue?
Money earned from business activities.
A business buys office supplies with cash. Does cash increase or decrease?
Decrease
What do we call a business transaction?
Any financial activity that affects the business.
What is a liability?
Something a business owes.
If assets are $10,000 and liabilities are $6,000, what is equity?
$4,000
What is an expense?
Cost of running the business.
A business receives cash from a customer. Does cash increase or decrease?
Increase
What is bookkeeping?
Recording daily financial transactions.
What is owner’s equity?**
The owner’s claim in the business.
If liabilities increase, what must also increase or decrease to keep the equation balanced?
Assets increase or equity decrease.
Is rent an expense or revenue?
Expense
A business buys equipment using a loan. What two accounts are affected?
Equipment (asset) and loan payable (liability).
What is the purpose of accounting?
To provide financial information for decision making.
Is cash an asset, liability, or equity?
Asset
True or False: The accounting equation must always balance.
True
Is sales income revenue or expense?
Revenue
A business pays rent. Is this an asset, expense, or liability?
Expense
Name one main user of accounting information.
Owner, manager, investor, bank, government, etc.
A loan payable is an example of what?
Liability
If equity is $5,000 and assets are $12,000, what are liabilities?
$7,000
Give one example of a business expense.
Utilities, rent, wages, supplies, etc.
A business owner invests personal money into the business. What increases?
Cash (asset) and owner’s equity.