Accounting Fundamentals and Transaction Types

Vocabulary practice covering types of transactions, basic accounting principles, and core financial statement components.

Credit Transaction

A transaction where payment is deferred to a future date, creating a receivable or payable and affecting both assets and liabilities simultaneously.

Capital Transaction

Transactions involving the buying of fixed assets (e.g., a machine) or paying liabilities; these are reflected in the balance sheet rather than the profit and loss account.

Revenue Transaction

Transactions involved with profit-making activities, including goods sold, materials purchased, and incidental costs incurred while doing business.

Revenue

Income generated from primary business operations, leading to an increase in equity, excluding owner contributions.

Expense

Costs incurred in the process of generating revenue, resulting in a decrease in equity.

Capital (Owner's Capital)

The amount invested in the business by the owner, including retained earnings, representing the owner's stake in the entity.

Drawings (Withdrawals)

Amounts withdrawn by the owner for personal use, which reduce equity but are not considered an expense.

Accounting Equation

A fundamental principle stating that total assets of a business are always equal to the sum of its liabilities and equity: $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Double-Entry Principle

The accounting system whereby every transaction affects at least two accounts, maintaining the equality of the accounting equation.

Accounts Receivable

Amounts owed to the business by customers for credit sales, classified as a current asset.

Accounts Payable

Short-term obligations owed by the business to suppliers for goods or services received on credit, classified as a current liability.