ACCT: Analyzing Business Transactions Chapter 2

Accounts Payable

Amounts a business must pay in the future

Accounts Receivable

Claims for future collection from customers

Assets

property owned by a business

Balance Sheet (statement of financial position)

A formal report of a business's financial condition on a certain date; reports the assets, liabilities, and owner's equity of the business

Business Transaction

A financial event that changes the resources of a firm

Capital

financial investment in a business; equity

Equity

An owner’s financial interest in a business

Liabilities

Debts or obligations of a business

On Account

An arrangement to allow payment at a later date; also called a charge account or open

Owner’s Equity

The financial interest of the owner of a business; also called proprietorship or net worth

Break Even

a point at which revenue equals expenses

Expense

An outflow of cash, use of other assets, or incurring of a liability

Fair Market Value

The current worth of an asset or the price the asset would bring if sold on the open market

Fundamental Accounting Equation

The relationship between assets and liabilities plus owner's equity. L + OE = A

Income Statement

A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expenses

Net Income

the result of an excess of revenue over expenses

Net Loss

the result of an excess of expense over revenue

Revenue

An inflow of money or other assets that results from the sales of goods or services or from the use of money or property; also called income

Statement of Owner’s Equity

A formal report of changes that occurred in the owner's financial interest during a reporting period

Withdrawals

Funds taken from the business by the owner for personal use, not a business expense but a decease in the owner’s equity