Lesson 2 - Terms Flashcards
The accounting cycle
Refers to the steps in preparing financial statements for users.
Account
An account is a detailed record of increases and decreases in a specific asset, liability, or equity item.
Ledger
A ledger is a record containing all accounts used by a business.
Books
Another word for ledger.
Accounts receivable
Occur when services are performed for or goods are sold to customers in return for promises to pay in the future.
Notes receivable
Are unconditional written promises to pay a definite sum of money on demand or on a defined future date.
Prepaid Expenses
Account containing payments made for assets that are to be used in the near future.
Accounts Payable
Occur with the purchase of merchandise, supplies, equipment, or services made a promise to pay later.
Notes Payable
Occur when an organization formally recognizes a promise to pay by signing a promissory note.
Unearned revenues
When customers pay in advance for products or services. (Magazine subscriptions, gift certificates, etc.)
T-account
Helpful learning tool that represents an account in ledger. (Account title, debits and credits)
Account Balance
Difference between increases and decreases recorded in an account
Debit
Left side of a t-account.
Credit
Right side of a t-account.
Double entry accounting
Every transaction affects and is recorded in at least two accounts. The amount debited must equal the total amount credited for each transaction.
