ACCT-2103 Fundamentals of Accounting - Exam #1 Review

This flashcard set covers the vocabulary and core concepts identified in the Exam #1 Review for Fundamentals of Accounting, including account classifications, accounting principles, and the fraud triangle.

Accounting equation

The foundational formula of accounting expressed as: $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Double-entry accounting concept

A system where every business transaction affects at least two accounts and total debits must equal total credits.

Asset

A resource owned or controlled by a business that is expected to provide future economic benefits.

Liability

A company's financial debt or obligations that result in a future sacrifice of economic benefits.

Expanded equity

The elements that make up the equity section of the accounting equation, specifically common stock, revenue, expenses, and dividends.

Normal debit balance

The expected balance side (left) for accounts that increase with a debit, such as assets, expenses, and dividends.

Normal credit balance

The expected balance side (right) for accounts that increase with a credit, such as liabilities, equity, and revenue.

Contra account

An account that reduces the balance of another related account and has a normal balance opposite that of the related account.

Expense (matching) principle

The accounting principle that requires expenses to be recorded in the same period as the revenues they helped generate.

Revenue recognition principle

The principle stating that revenue should be recorded in the period it is earned, regardless of when cash is received.

Chart of accounts

A comprehensive list of all account names and identification numbers used by a business in its general ledger.

Fiscal year

An accounting period consisting of $12$ consecutive months that does not necessarily end on December 31.

Calendar year

An accounting period that begins on January 1 and ends on December 31.

Fraud triangle elements

The three components that typically contribute to workplace fraud: Opportunity, Pressure (Incentive), and Rationalization.

T-accounts

A visual tool used to represent a ledger account, formatted like the letter "T", used to track debits on the left and credits on the right.

Prepaid expenses

Assets created by paying for an expense in advance of its use, such as insurance or rent.

Unearned revenues

A liability created when a company receives payment from a customer before the service or product has been delivered.

Accrued expenses

Expenses that have been incurred but have not yet been paid or recorded through a journal entry.

Accrued revenues

Revenues for services performed or goods delivered that have not yet been recorded or received as cash.

Perpetual inventory

An inventory system that continuously updates the inventory records for every purchase and sale as they occur.

Discount period

The specific timeframe offered by a seller during which a buyer can pay an invoice and receive a reduced price.