Accounting Basic
What is Accounting?
Accounting is the process of recording, classifying, summarizing and interpreting financial transactions.
What is an asset?
Something of value owned by a business.
Who is an internal user of accounting information?
The owner, manager, and employees of the business.
What type of account is Cash?
Asset account
What is the basic accounting equation?
Assets= Capital = Liability
Why is accounting important to a business?
It helps a business keep track of its money and make informed financial decisions.
What is an liabilty?
A debt or obligation owed by a business to another person or organization.
Why would a business owner need accounting information?
To determine how well the business is performing and make decisions.
What type of account is Rent expense?
Expense account
If a business has assets of $100,000 and liabilities of $30,000, what is the owner's capital?
Capital= Assets- Liabilities
Capital = $ 70,000
What is a financial transaction?
It is an economic activity that involves money or has a financial effect on a business.
What is capital?
The owner's investment or interest in the business.
Why would a bank want to examine a business's accounting records?
To determine whether the business is financially capable of repaying a loan.
What type of account is Capital?
Capital/owner's equity account.
A business owner invests $50,000 cash into the business. What happens to the accounting equation?
Assets increase by $50,000, and capital increases by $50,000
What is bookkeeping?
Bookkeeping is the systematic recording of the financial transactions of a business.
What are drawings?
Money or goods taken from the business by the owner for personal use.
Name two external users of accounting information.
Banks, investors, government agencies, suppliers, and creditors.
What type of account is Sales Revenue?
Revenue/income account.
A business buys equipment for $20,000 on credit. What happens to the accounting equation?
Assets increase by $20,000 and liabilities by $20,000.
What is one major difference between bookkeeping and accounting?
Bookkeeping focuses mainly on recording transactions while accounting includes recording, analyzing, interpreting and reporting financial information.
A business purchases furniture for $50,000 is the furniture an asset, liability or capital? And why?
Assets, because the furniture is something of value owned by the business.
A supplier wants to sell goods to a business on credit. Why might the supplier examine the business's accounting information?
To determine whether the business is financially reliable and likely to pay its debt.
A business pays its electricity bill. Which type of account is affected by electricity cost?
Expense account- Electricity Expense.
A business has assets of $250,000 and capital of $175,000. Calculate its liabilities.
Assets= Capital + Liabilities
$250,000= $175,000 + Liabilities
Liabilities= Assets - Capital
Liabilities = $250,000 - $175,000
Liabilities= $75,000