Accounting Basics

Vocabulary flashcards covering the fundamentals of accounting, business types, record-keeping methods, and the account classification system based on lecture notes.

Accounting

The process of recording business transactions and preparing financial records and statements.

GAAP

An acronym for Generally Accepted Accounting Principles, which are standard rules and principles used in accounting.

LLC

An acronym for Limited Liability Company, a common form of business organization.

Service, sales, and manufacturing

The three basic types of businesses.

Cash-basis accounting

An accounting method where transactions are generally recorded when cash is received or paid.

Accrual-basis accounting

An accounting method where revenue is recorded when earned and expenses when incurred, regardless of when cash is received or paid.

Journal

A book used to record transactions in chronological order; also known as the book of original entry.

General ledger

A record containing all the accounts of a business where journal transactions are posted.

Petty cash record

A record of small cash transactions.

Accounts receivable

Money owed to the business.

Accounts payable

Money the business owes to others.

Fixed asset log

A record of the business’s fixed assets.

Asset

Something of value that a business owns, such as cash, accounts receivable, automobiles, equipment, buildings, land, and supplies.

Accumulated depreciation

The accumulated amount of depreciation recorded against an asset.

Liability

Money or obligations that a business owes, such as accounts payable or mortgage payable.

Owner’s equity

The owner’s financial interest in the business; also referred to as net worth.

Revenue

Money earned by a business from its activities, such as sales income or interest earnings.

Expense

A cost incurred to operate a business, including items like rent, salaries, and insurance.

Chart of Accounts

A listing of all accounts used in an accounting system which provides the basis for preparing financial reports.

$100$ series

The account number series that represents Assets.

$200$ series

The account number series that represents Liabilities.

$300$ series

The account number series that represents Net Worth.

$400$ series

The account number series that represents Revenue.

$500$ series

The account number series that represents Expenses.

Double-entry accounting

A system where each transaction affects two or more accounts and the accounting equation must remains balanced.

Basic accounting equation

$$\text{Assets} = \text{Liabilities} + \text{Net Worth}$$

Expanded accounting equation

$$\text{Assets} = \text{Liabilities} + \text{Net Worth} + \text{Revenue} - \text{Expenses}$$

Debit

The left side of an account; it increases Expenses, Assets, and Drawings (Withdrawals) as per the DEAD memory trick.

Credit

The right side of an account; it increases Liabilities, Net Worth, and Revenue.

Sales Journal

A specialized journal used to record sales made on credit.

Purchases Journal

A specialized journal used to record purchases made on credit.

Cash Receipts Journal

A specialized journal used to record all incoming cash.

Cash Disbursements Journal

A specialized journal used to record all outgoing cash.

General Journal

A journal used to record transactions not recorded in other specialized journals.

T-account

An account format with debits on the left and credits on the right.