Accounting Flashcards
Define sole trader
Person who is self-employed, runs and owns a company as an individual. They have 100% control over their profit and liabilities.
Define accounting equation
The basic principle of accounting and fundamental element of the balance sheet. Ex:
Equity = Assets - liabilities
Assets = Equity + liabilities
Liabilities = Equity - Assets
Define capital
Capital is the money you use to start.grow and run an upcoming business. Capital is also the money used to invest in new projects or assts.
Anything that confers value or benefits to its owner such as a factory.
Define assets
An asset is any resource owned or controlled by a business or a person, which has economic value.
Define liabilities
Liabilities is something that you owe to someone and need to pay back, its like credit. It isn’t an asset where you own it, you need to pay it back
Define Balance sheet
Balance sheet is this table that shows us that what you own is equal to what you owe, it’s this ideology made from accountants to show the economic value. You can’t create value, it gets transferred.
Define accounts receivable
The fund/ amount of money that customers owe you for the service/goods
Define accounts payable
Money that your business owes to vendors or suppliers for goods and services.
Define entity concept
In accounting a business and its owners accounts are treated as two separate entities. This principle is called entity concept
Define drawings
Drawings means the amount of money or other assets taken out of a business for the owners personal or domestic used.
Define Capital introduced
Capital introduced refers to money, stock, or assets invested into a business by the business owner.
Define revenue
Total amount of money made before deducting costs and expenses
Define accounting
Accounting is the communication of financial information in order to make business decisions
Accounting equation
Assets - liabilities = owner equity
Assets = liabilities + owner equity
Types of income
Sales/fees: these are the main types of income depending on whether you are selling goods or providing a service. We classify them as revenue.
Other income: Additional income to sales/fees. Like interest, commission received and rent received
