Accounting chapter 3

Property

Anything of value that a business or person owns and therefore controls.

Financial Claim

Legal right to an item of property.

Credit

An agreement to pay for a purchase at a later time; an entry on the right side of an account.

Creditor

A business or person to whom money is owed.

Assets

Property or items of value owned by a business.

Equities

The total financial claims to the assets of a business.

Owner's Equity

The owner's financial claims to the assets of the business.

Liabilities

Amounts owed to creditors; the claims of creditors to the assets of a business.

Accounting Equation

The accounting relationship between assets and the two types of equities: Assets = Liabilities + Owner's Equity.

Business Transaction

An economic event that causes a change—either an increase or a decrease—in assets, liabilities, or owner's equity.

Account

A subdivision under assets, liabilities, or owner's equity that summarizes the changes and shows the balance for a specific item.

Accounts Receivable

The amount of money owed to a business by its credit customers (an asset account).

Accounts Payable

The amount of money owed, or payable, to the creditors of a business (a liability account).

Investment

Money or other property provided to a business for the purpose of making a profit.

On Account

The purchase or sale of an item on credit.

Revenue

Income earned from the sale of goods and services, which increases owner's equity.

Expense

The cost of goods or services used to operate a business, which decreases owner's equity.

Withdrawal

The removal of cash or another asset from the business by the owner for personal use, which decreases assets and owner's equity.