Accounting for Business Transactions

These flashcards cover essential vocabulary and concepts related to accounting for business transactions, including definitions and explanations of key terms.

Account

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense.

Debits and Credits

The two sides of double-entry accounting; debits increase assets and expenses, while credits increase liabilities, equity, and revenue.

Double-Entry Accounting

An accounting method that requires each transaction to be recorded in at least two accounts, maintaining the accounting equation: Assets = Liabilities + Equity.

Chart of Accounts

A list of all accounts used by a company, along with their corresponding numbers.

Trial Balance

A statement that lists all the ledger accounts and their balances at a specific point in time to ensure total debits equal total credits.

Income Statement

A financial statement that reports a company's revenues and expenses over a specific period of time, resulting in net income or loss.

Statement of Retained Earnings

A financial statement that shows changes in retained earnings for a specific period, reflecting net income and dividends paid.

Balance Sheet

A financial statement that reports the financial position of a company, detailing the types and amounts of assets, liabilities, and equity at a specific point in time.

Debt Ratio

A financial ratio used to evaluate a company's level of debt in relation to its assets, indicating financial risk.

Source Documents

Documents that provide evidence of business transactions such as invoices, receipts, checks, and payroll records.

Ledger

A collection of all accounts and their balances used in the accounting system.

Asset Accounts

Accounts that represent resources owned by the company, such as cash, equipment, and inventory.

Liability Accounts

Accounts that represent obligations or debts owed by the company, such as accounts payable and notes payable.

Equity Accounts

Accounts that represent the owner's residual interest in the assets of the company after liabilities have been deducted.

Financial Statements

Reports that summarize the financial performance and position of a business, including the income statement, balance sheet, statement of retained earnings, and statement of cash flows.

Journalizing

The process of recording transactions in the journal before posting them to the ledger.

Posting

The process of transferring journal entries to the appropriate accounts in the ledger.

Analyzing Transactions

The first step in the accounting cycle, which involves identifying and assessing the financial impact of a transaction.

Expense Accounts

Accounts that represent the costs incurred by a business, including salaries, rent, and utilities.