Chapter 2

Question 1

Business transaction

Answer 1

Any financial event that changes the resources of a firm. Purchases, sales, payments, and receipts of cash are all business transactions.

Question 2

Equity

Answer 2

An owner’s financial interest in a business.

Question 3

Capital

Answer 3

Financial investment in a business; equity.

Question 4

Property

Answer 4

Financial interest or equipment.
Property can remain the same but can change form ~ money spent for supplies is still property company has but now it’s in supply form rather than money form.
Same goes for rent, - paid rent = prepaid rent/rental space which business has, so property remains in balance but in different form.

Question 5

On Account

Answer 5

An arrangement to allow payment at a later date; also called a charge account or a open-account credit.

Question 6

Accounts payable

Answer 6

Amounts a business must pay in the future. The companies or individuals to whom the accounts are owed are called creditors.

Question 7

Balance Sheet

Answer 7

A formal report or a business’s financial condition on a certain date; reports the assets, liabilities and owners equity of the business - is also called statement of financial position.

3 line heading = firm name, title of report, date of report
Dollar signs are omitted on paper with ruled columns, included on paper without ruled columns.
Single line shows amounts above are being added or subtracted; double line indicate amount is final. (- and =)

Question 8

Assets

Answer 8

The property that a business owns.

Question 9

Liabilities

Answer 9

The debts or obligations of a business.

Question 10

Owners Equity

Answer 10

The owners financial interest. Also called proprietorship or net worth.

Question 11

Fundamentally accounting equation

Answer 11

The relationship between assets and liabilities plus owner’s equity

Question 12

Revenue (or income)

Answer 12

An inflow of money or other assets that results from the sales of goods or services of from the use of money or property; also called income

Question 13

Expense

Answer 13

An outflow of cash, use of other assets or incurring of a liability.

Costs of any materials like supplies, labor and services used to produce revenue.

Question 14

Accounts receivable

Answer 14

Claims for future collection from customers

Question 15

Withdrawals

Answer 15

Funds taken from the business by the owner for personal use; not a business expense but a decrease in the owner’s liability.

Question 16

Income statement

Answer 16

A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expenses.
Shows revenue earned and expenses of doing business.

Question 17

Net Income

Answer 17

The result of an excess of revenue over expenses

Question 18

Net loss

Answer 18

The result of an excess of expenses over revenue

Question 19

Break even

Answer 19

A point where revenue equals expenses

Question 20

Statement of owner’s equity

Answer 20

A formal report of changes that occurred in the owner’s financial interest during a reporting period

Question 21

Fair market value

Answer 21

The current worth of an asset or the price the ass it would bring if sold on the open market