Accounting basics
Money a business spends to operate, such as rent, electricity, and advertising.
expenses
The owner's financial interest in the business after liabilities are subtracted from assets.
owner's equity
An increase in an asset account is recorded using this.
debit
A customer pays a business $500 cash for services. Cash increases, and this account also increases.
revenue/service revenue
This appears when expenses are greater than revenue.
net loss
The process of recording, organizing, and reporting a business's financial information.
What is accounting?
Something valuable that a business owns.
asset
A business earns $1,000 and spends $700. This is its profit.
$300
A financial event that changes a company's accounts.
transaction
A financial statement showing revenues and expenses.
income statement
Money a business earns from selling products or services.
revenue
Money or obligations a business owes to others.
liabilities
A business begins with $25,000 in assets and $10,000 in liabilities. It then pays off $4,000 of its liabilities with cash. Immediately afterward, give the new assets, liabilities, and owner's equity.
$21,000 assets, $6,000 liabilities, and $15,000 owner's equity
A business pays $1,000 cash for rent. This type of account increases.
expense
The financial statement that reports assets, liabilities, and equity at a specific point in time.
balance sheet
The amount remaining when expenses are subtracted from revenue.
profit/net income
Cash, equipment, inventory, and accounts receivable are examples of this accounting category.
assets
An increase in a liability account is normally recorded using this.
credit
A business purchases $5,000 of equipment by borrowing the entire amount. Assets increase by $5,000 and this category also increases by $5,000.
liabilities
A business has $20,000 in revenue and $14,000 in expenses. This is its net income.
$6,000
The basic accounting equation used to show the relationship between what a business owns and owes.
Assets = Liabilities + Owner's Equity
A business has $50,000 in assets and $20,000 in liabilities. This is the owner's equity.
$30,000
Your business sells an item for $400 that originally cost $250. Ignoring other expenses, this is the gross profit on the sale.
$150
The owner invests $10,000 cash into a new business. Name the two major accounting categories that increase.
assets and owner's equity
A company's balance sheet shows $75,000 in assets and $45,000 in owner's equity. Calculate its liabilities.
$30,000