Linking Personal Accounting to Business Accounting

This set of flashcards covers key concepts in personal and business accounting from the lecture notes on linking the two fields.

Net Worth

In personal accounting, *** *****is the difference between total assets and total liabilities, similar to owner’s equity in business accounting.

Equity

If the business sells all the assets for the values reflected in the balance sheet and uses the cash received to pay all the debts, the remaining cash would represent equity.

Owner’s Investments

When an owner(s) of the business invests personal assets into the business. These transactions affect assets (generally cash) and owner’s equity.

Owner’s Withdrawals

******* *********** are when an owner withdraws assets from the business for personal use. These transactions affect assets (generally cash) and owner’s equity.

Financial Statements

Reports that summarize the financial performance and position of a business, including income statements, balance sheets, and cash flow statements.

Accrual Basis of Accounting

A method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

T-accounts

Visual representation of individual accounts in the accounting system, used to track increases and decreases in accounts.

Unearned Revenue

Liability representing funds received before services are performed, which must be recognized as revenue once the service is delivered.

Prepaid Expenses

Expenses paid in advance for goods or services to be received in the future, classified as assets until the service is utilized.

Three Types of Businesses

Service businesses, merchandising businesses, and manufacturing businesses.

Revenue Recognition

The process of recording revenue when it is earned, regardless of cash receipt.

Net Income

Total revenue minus total expenses, indicating the profit earned by the business during a specific period.

Fraud Triangle

A model explaining the factors that lead to fraud: opportunity, pressure, and rationalization.