Vocab/ Accounting Concepts
The amount remaining after all liabilities have been subtracted from the value of all assets
Owner's Equity
State the Accounting Equation
Assets = Liabilities + Owner's Equity
What accounts are affected and how are they affected when a business pays cash for advertising?
Cash is decreased and owner's equity is decreased by an expense.
Indicate whether each of the following is identified as an asset, liability or owner's equity: 1. accounts payable 2. cash 3. land 4. supplies 5. Sales 6. rent expense
1. Liability 2. Asset 3. Asset 4. Asset 5. Owner's Equity 6. Owner's Equity
The accounting Equation is most often stated as Assets + Liabilities = Owner's Equity
Assets=Liabilities + Owner's Equity
Financial reports that summarize the financial conditions of a business
Financial Statements
An Accounts Receivable is classified as what type of account?
Asset
What accounts are affected and how are they affected when a business buys supplies for cash?
Cash is decreased and supplies are increased
If a business has the following balances in their accounts, what is the owner's equity? Cash $10,000, Accounts Payable $3,000, Supplies $2,000, Truck $8,000 Bank Loan $7,500 Accounts Receivable $3,000
Assets = Liabilities + Owner's Equity Assets:10,000+2,000+8,000+3,000=23,000 Liabilities: 3,000+$7,500=10,500 Owner's Equity: $12,500
Total Assets are the amount that the owner has invested in the business
Onwer's Equity is the amount the owner has invested in the business OR Assets - Liabilities is the amount the owner has invested in the business.
The account used to summarize Owner's Equity in a business
Capital
Pre-paid Insurance is classified as what type of account?
Asset
When a company pays cash on account, what accounts are affected and how are they affected?
Cash is decreased and Accounts Payable is decreased
Identify the transaction that would affect the Accounting Equation in the 3 following ways: 1. Increase in an asset, decrease in another asset 2. Decrease Owner's Equity, decrease an asset 3. Decrease in a liability, decrease in an asset
1. Buying Supplies for cash 2. Paying Cash for an expense 3. Paying cash to an Accounts Payable
An owner withdrawal is a normal operating expense of a business
A withdrawal is assets taken out of the business for personal use and is a decrease in owner's equity but is NOT considered an expense.
When the business buys items and promises to pay for them later
Accounts Payable or Purchase on Account
A withdrawal is classified as what type of account?
Owner's Equity
What accounts are affected and how are they affected when a business sells services on Account?
Revenue (Owner's Equity) is increased and Accounts Receivable (Asset) is increased.
How can a dive restaurant have a higher owner's equity than a fancy restaurant?
Owner's equity is the Assets - Liabilities or what is owned minus what is owed. If the fancy restaurant has very high debit it is very possible that it could have a lower owner's equity balance.
A transaction for the Sale of Services is a decrease in Owner's Equity (Revenue)
A Sale increases the Owner's Equity account through Revenue
This Accounting Concept is applied when a business's financial information is recorded and reported separately from the owner's personal financial information
Business Entity
Define Accounts Payable and identify what type of account it is classified as
Accounts Payable-Buying something now and paying for it later. Liability.
What accounts are affected and how are they affected when a business receives cash on account
Increase Cash, Decrease Accounts Receivable
What is the difference between and Accounts Receivable and an Accounts Payable?
Accounts Receivable is when a customer owes you money and is an asset. Accounts Payable is when you owe a company money and is a liability.
An owner is not allowed to withdraw cash from the business.
An owner can withdraw cash or any asset from their business. A withdrawal reduces the asset and the capital account.