Chapter 2: The Balance Sheet

Assets, liabilities, and stockholders' equity

The three categories you find on the Balance Sheet are:

Debt financing

__________ is the money and loans that a business borrows from banks and must repay in the future.

Equity financing

__________ is raising money by selling shares to stockholders or investors.

Assets

A business will invest in __________ to benefit the company.

Activities

Companies must document all __________, which includes loans, purchases, sales, and returns.

give and a get

A transaction or exchange must always include a(n) __________.

Cost principle

By having a designated dollar amount (ex: American dollar), you are following the __________.

External exchanges

__________ happen between a company and someone, like selling a product to a customer.

Internal events

__________ involve utilizing assets to create another asset, like a product to sell to get cash.

accounting cycle

The __________ is used to report the financial information of a company.

transaction

A(n) __________ is an activity that occurs between at least two people.

Analyze
Record
Summarize
Prepare a Trial Balance
Report Financial Statements

The order of the accounting cycle is:

duality of effects

When a transaction has two effects on the accounting equation, this is called __________.

account titles

Assets, liabilities, and stockholders' equity all have a variety of __________.

T-accounts

Ledger accounts, aka __________ summarize information from the journal entries.

debit credit framework

The __________ is used when making journal entries, which shows how transactions effect accounts. Where you write the total depends on if the account has a normal credit or debit balance.

normal balance

The __________ of an account is the side that makes the account increase.

debit

An has a normal __________ balance.

credit

Liabilities and Stockholders' Equity have a normal __________ balance.

The date of the transaction
The account name
Debits
Credits

A journal entry includes:

Journal entries

__________ are created to record financial effects and can have multiple entries listed by the date transactions occurred.

trial balance

After journal entries, a __________ is created to total up debits and credits of all accounts and to make sure debits = credits.

classified balance sheet

After creating a trial balance sheet, the __________ is created.

Current assets

__________, also known as short term assets, will be used or sold within a year.

Non-current assets

__________, also known as long term assets, will not be used or sold within the year.

Current liabilities

__________, also known as short term liabilities, will be due and repaid within one year.

Non-current liabilities

__________, also known as long term liabilities, will be paid after a year or more.

current ratio

The __________ provides information on a company's ability to pay. You want more assets than liabilities.

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Equation to calculate the Current Ratio:

higher

When the current ratio is __________, that indicates a better ability to pay.

What is and is not reported on the balance sheet
The cost amounts assigned to the recorded items

The process of recording and reporting transactions has an effect on:

cost principle

When first recorded, assets and liabilities are recorded at initial cost, which follows the __________.