week 2

This set of flashcards reviews key vocabulary terms related to balance sheets and financial accounting principles, essential for understanding Chapter 11e.

Separate entity assumption

Each business’s activities must be accounted for separately from the personal activities of the owners.

Going concern assumption

The assumption that a business will continue operating into the foreseeable future.

Monetary unit assumption

Financial statements are reported using the national monetary unit.

Historical cost

Balance sheet elements are initially recorded at their cost.

Current assets

Resources a company will use or turn into cash within one year.

Liabilities

Obligations resulting from past transactions, expected to be settled in the future.

Stockholders’ Equity

Represents the residual interest in the assets of the entity after subtracting liabilities.

Contributed capital

Financing provided by owners, includes cash and other assets invested in the business.

Retained earnings

The portion of profits reinvested in the business after deducting losses and dividends.

External events

Exchanges of assets, goods, or services between the business and external parties.

Internal events

Events that have a direct and measurable effect on the entity, not involving exchanges with other parties.

Chart of accounts

A list of all account titles and their unique numbers organized by financial statement element.

Transaction analysis

The process of identifying affected accounts, their classifications, and the direction of effects in a transaction.

General Journal

where transactions are recorded in chronological order

T-accounts

A visual representation of individual account balances showing debits and credits.

Trial balance

A list of the names of the T-accounts in financial statement order to check the equality of debits and credits.

Classified balance sheet

A balance sheet that groups assets and liabilities into current and noncurrent categories.

Contributed Capital

financing provided by owners

Journal Entry

accounting method for expressing the effects of a transaction on accounts, written in a debits-equal-credits format.