Key Accounting Terms and Concepts for Financial Statements

Proprietorship

The state or right of owning a business or holding property

Trial Balance

A statement listing all debits and credits to check that total debits equal total credits

General Ledger

The main accounting record of a company that contains all accounts

Liability

A debt or obligation the business owes to others

Chart of Accounts

A structured list of all accounts used by a business

Source Document

The original record that provides proof of a financial transaction

Fiscal Period

An annual accounting year

Posting

Transferring transaction information from the journal to the general ledger

T Account

A visual tool used to track debits and credits for an account

Adjusting Entries

Journal entries made at the end of a period to update account balances

Income Statement

A financial statement showing revenues, expenses, and net income for a period

Net Income

Revenues minus expenses; profit for the period

Asset

A resource owned by a business that provides future economic benefit

Service Business

A business that provides services rather than selling products

Balance Sheet

A financial statement showing assets, liabilities, and owner's equity at a point in time

Objective Evidence

Accounting concept requiring transactions to be based on facts, not opinions

Accounting Equation

Assets = Liabilities + Equity

Matching Principle

Expenses must be recorded in the same period as the revenues they help generate

Worksheet

An internal spreadsheet used to prepare financial statements

Revenue

Income earned from business activities

Double-Entry Accounting

Each transaction affects at least two accounts and debits equal credits

Net Loss

When expenses exceed revenues

File Maintenance

Organizing and maintaining computer files

Equity

The owner's claim on business assets after liabilities are subtracted

Cash

Asset

Accounts Receivable

Asset

Supplies

Asset

Prepaid Insurance

Asset

Accounts Payable

Liability

Capital

Owner's Equity

Drawing

Owner's Equity

Sales

Revenue

Advertising Expense

Expense

Any Asset Normal Balance

Debit

Any Liability Normal Balance

Credit

Capital Normal Balance

Credit

Drawing Normal Balance

Debit

Revenue Normal Balance

Credit

Expense Normal Balance

Debit

Assets Increase

Debit

Liabilities Increase

Credit

Assets Decrease

Credit

Liabilities Decrease

Debit

Capital Decrease

Debit

Drawing Decrease

Credit

Revenue Decrease

Debit

Expense Decrease

Credit

Check

Used when the company pays cash

Tape

Used when the company receives cash

Sales Invoice

Used when the company sells services on account

Receipt

Used when cash is received from sales

Memo

Used when the company purchases supplies on account