Accounting Fundamentals (Video)

60 practice flashcards in Q&A format covering basic accounting concepts from the video notes.

What is accounting described as?

The language of business; it tracks money earned, spent, owned, and owed.

What is an asset?

Something a company owns with value (cash, equipment, inventory, buildings).

What is a liability?

What a company owes (loans, accounts payable, credit card debt, bills).

What is retained earnings?

Profits kept in the business.

What is equity?

Owners' claim on the business after liabilities are paid; assets minus liabilities.

Give an example of equity.

Retained earnings and investments.

What is revenue?

Money earned from selling goods or services.

What is an expense?

Money spent to run the business (rent, salaries, utilities).

Provide an asset example for a lemonade stand.

Cash, lemons, blender, or equipment.

Provide a liability example for the lemonade stand.

Borrowed money from a friend or supplier credit.

Provide an equity example when starting a lemonade stand.

Putting in your own money, e.g., $50.

What is a revenue example for a lemonade stand?

Every time a cup of lemonade is sold.

What is an expense example for a lemonade stand?

Buying lemons, sugar, cups, or signage.

What does assets = liabilities + equity mean?

Assets equal the sum of what the business owes plus what owners have invested.

What does the Balance Sheet show?

Assets, liabilities, and owner's equity at a point in time.

What does the Income Statement show?

Revenues and expenses over a period, yielding net profit or loss.

What does the Cash Flow Statement show?

Cash inflows and outflows over a period.

What is a debit (Dr)?

Usually increases assets or expenses and decreases liabilities or equity.

What is a credit (Cr)?

Usually increases liabilities, equity, or revenue and decreases assets or expenses.

How many accounts are affected by every transaction?

At least two; one debit and one credit.

If you buy supplies, is it a debit or credit to expenses?

It’s a debit because expenses go up.

If you receive more cash, what happens to assets?

It’s a debit; assets go up.

If you borrow money, what happens to liabilities?

It’s a credit; liabilities go up.

If you make a sale, what happens to revenue?

It’s a credit; revenue goes up.

If you spend cash, what happens to assets?

It’s a credit; assets go down.

How do you balance a transaction?

Every transaction has one debit and one credit; totals must balance.

What is accounts receivable?

Money that people owe you because you sold them something but haven’t been paid yet; asset.

Why is accounts receivable considered an asset?

It represents future cash you expect to collect.

What are utilities expenses?

The money spent on basic services to run the business (electricity, water, gas, internet).

Give an example of utilities expense.

Monthly electricity bill, water bill, internet service.

What is Tour Service Revenue?

Revenue earned from giving tours.

Where does Tour Service Revenue appear?

On the income statement as revenue.

How is Tour Service Revenue recorded when earned?

Credit Tour Service Revenue; Debit Cash or Accounts Receivable depending on payment timing.

What is Unearned Revenue?

Money received for a product or service not yet delivered; a liability.

In the haunted trolley tour example, what is $100 received for a future tour?

A liability; unearned revenue.

How is advance revenue recorded when received?

Credit: Unearned Revenue; Debit: Cash.

What entry occurs when the future tour is delivered?

Debit: Unearned Revenue; Credit: Tour Service Revenue.

Which statement is correct about the accounting equation?

All of the above (Liabilities = Assets – Equity; Assets = Liabilities + Equity; Equity = Assets – Liabilities).

Increases in equity from sales of products/services are called?

Revenues.

What are assets?

Resources owned or controlled that yield future benefits.

Are Supplies a type of asset?

Yes, a current asset; supplies used by the company (not sold).

Is Prepaid Insurance an asset?

Yes.

Is Retained Earnings part of equity?

Yes.

Is Common Stock part of equity?

Yes.

Is Loans Payable a liability?

Yes.

Is Insurance Expense an asset?

No; it’s an expense.

Is Inventory an asset?

Yes.

What types of accounts appear on the Income Statement?

Revenues and Expenses.

Acme Corporation borrows $8,000 cash. What are the effects on the accounting equation?

Assets and Liabilities increase.

In the Cash T-Account example, what is the total cash receipts?

$14,500.

An entry on the right-hand side of a T-account is which?

Credit.

What type of accounts begin each accounting period with a zero balance?

Temporary accounts.

What does the journal entry Cash 7,500; Common Stock 7,500 indicate?

The owner invested cash in exchange for common stock.

Which action affects equity: receiving cash from an investor for common stock?

Yes; it increases equity.

What is the purpose of the Trial Balance?

To find mistakes and confirm that debits equal credits.

What are dividends?

Distributions of net income (retained earnings) to owners.

Journal entry: Purchase of supplies for $500 cash.

Debit Supplies 500; Credit Cash 500.

Journal entry: Payment of utilities of $1,000.

Debit Utilities Expense 1,000; Credit Cash 1,000.

Journal entry: Service performed for $12,000 in cash.

Debit Cash 12,000; Credit Service Revenue 12,000.

Journal entry: Borrowed $20,000 cash from the bank.

Debit Cash 20,000; Credit Loan Payable 20,000.