Accounting Fundamentals: Debits, Credits, Financial Statements, and Metrics

Comprehensive vocabulary flashcards covering basic debit and credit rules, journal entries, ledger accounts, trial balances, financial statements, and key financial ratios.

Debit

The left side of an accounting account, which increases asset, expense, and withdrawal accounts.

Credit

The right side of an accounting account, which increases liability, capital (equity), and revenue accounts.

Normal Balance

The side of an account (debit or credit) where increases to that account are recorded.

T-Account

A visual representation of a ledger account shaped like a 'T', featuring a left side for debits and a right side for credits.

Journal Entry

A chronological record of a transaction in the accounting system specifying the date, affected accounts, and equal debit and credit amounts.

General Ledger

An accounting report that contains all transactions grouped and summarized by individual account.

Trial Balance

An accounting report listing all accounts and their respective debit or credit balances to ensure total debits equal total credits.

Unearned Revenue

A liability account created when cash is received in advance from a customer before services are actually performed.

Prepaid Insurance

An asset account representing advance payment for future insurance coverage.

Income Statement

A financial report showing revenues, expenses, and net income or loss over a specific period of time.

Statement of Owner's Equity

A financial report detailing how owner's capital changes over a specific period of time through investments, net income, and withdrawals.

Balance Sheet

The only financial statement prepared as of a specific date, reporting an entity's total assets, liabilities, and owner's equity.

Debt Ratio

A financial solvency metric calculated as $\frac{\text{Total Liabilities}}{\text{Total Assets}}$, where lower values indicate greater financial health.

Artificial Intelligence in Accounting

Features embedded in modern accounting software (such as QuickBooks Online) that generate automated analysis of financial statements to serve as a complementary tool for accountants.