Financial Accounting Exam 1

Chapter 1 and 2

Accounting Equation

Assets = Liabilities + Stockholders’ Equity

Assets

Resources owned by a company

Liabilities

amounts owed to creditors

Stockholders’ Equity

owners’ claims to resources

Business Transaction

An economic event that initiates the accounting process of recording it in the company’s accounting system.

Accounting Period

the specific time period (beginning and end) for which the accounts are aggregated, balanced, and the financial statements are prepared.

Account

summary of the effects of all transactions related to a particular item over a period of time.

Chart of Accounts

a list of all account names used to record transactions of a company

Financial Statements

periodic reports published by the company for the purpose of providing information (communicate) to external users.

Income Statement

financial statement that reports the company’s revenues and expenses over an interval of time. (incl revenue + expenses)

Statement of stockholders’ equity

financial statement that summarizes the changes in stockholders’ equity over an interval of time (incl Stockholders equity)

Balance Sheet

financial statement that presents the financial position of the company on a particular date. (incl assets, liabilities, stockholders equity)

Statement of Cash flows

financial statement that measures activities involving cash receipts and cash payments over an interval of time.

General ledger

the general ledger provides, in a single collection, each account with its individual transactions and resulting account balance

Journal

a chronological record of all transactions affecting a firm.

posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Unadjusted Trial Balance.

A list of all accounts and their balances before adjusting entries are completed, showing the total debits and credits.

Cash

liquid assets owned by the company. (debit, asset, balance sheet)

Accounts Receivable

amounts the company expects to collect from customers based on the delivery of products. (debit, asset, balance sheet)

Prepaid Expenses

costs of assets acquired in one period that will be expensed in a future period. (debit, asset, balance sheet)

Inventory

the cost of the merchandise purchased but not yet sold to customers. (debit, asset, balance sheet)

Supplies

the cost of supplies (pens, paper, toner, etc.) used in the operation of a business. (debit, asset, balance sheet)

Accounts Payable

Promise to pay cash in the future when purchasing supplies or materials. (credit, liability, balance sheet)

Notes payable

Total amounts owed to creditors for loaning money to the company. (credit, liability, balance sheet)

Deferred Revenue

cash in advance from a customer for products or services to be provided in the future. (credit, liability, balance sheet)

Common Stock

Amount shareholders have invested in the business. (credit, stockholders’ equity, balance sheet)

Retained Earnings

cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. (credit, stockholders’ Equity, balance sheet)

Revenues

the amounts earned from selling products or services to customers. (credit, revenue, income statement)

Expenses

the costs of providing products and services. (debit, expense, income statement)

Net Income

the difference between revenues and expenses. (calculation: revenues – expense, income statement)

Dividends

cash payments to stockholders (owners). (debit, no major category, stmt. of stockholders’ equity)

Retained Earnings Formula

Beginning RE + Net Income - Dividends = Ending RE