Basic Accounting Concepts
The accounting equation.
What is Assets = Liabilities + Owner's Equity
Statement that shows a company's revenues and expenses over a specific period.
What is the income statement.
The principle that states revenue should be recognized when it is earned, regardless of when the cash is received.
What is the revenue recognition principle.
Allocates the cost of the prepaid rent over the period it benefits.
DR - Rent Expense; CR - Prepaid Rent
The account used to record refunds to customers for returned merchandise.
What is the Sales Returns and Allowances account.
Resources owned by a business.
What are assets.
The statement that provides a snapshot of a company's financial position at a specific point in time.
What is the balance sheet.
The principle that requires expenses be matched with revenues in the period in which they are incurred.
What is the matching principle. Or - expense recognition principle.
Recognize revenue that has been earned but not yet recorded.
DR - Accounts Receivable; CR - Service Revenue
The account used to record the discount when purchasing inventory.
What is merchandise inventory.
Obligations owed to others.
What are liabilities.
The formula for net income.
What is revenue - expenses.
The name of the principles businesses must use for their accounting.
Allocates the cost of a long-term asset over its useful life.
DR - Depreciation Expense; CR - Accumulated Depreciation.
The account used to record the reduction in sales price for payment that was made within the discount period.
What is the Sales Discount account.
The owner's claim on the assets of the business.
What is owner's equity.
Assets that are expected to be converted to cash or used up within one year.
What are current assets.
The process of transferring data from the journal to the ledger (T-account).
What is posting.
Recognizes revenue for which cash was received prior to providing the service.
Inventory system that continuously updates inventory records for each purchase and sale.
What is the perpetual inventory system.
The three financial statements.
What are the income statement, the statement of owner's equity, and the balance sheet.
Ensures total debits equal total credits in the ledger.
What is the trial balance.
The type of account that Sales Discounts is to Revenue.
What is a contra account.
Prepared after adjusting entries are posted.
What is the adjusted trial balance.
Net Sales Revenue minus Cost of Goods Sold.
What is gross profit.