Accounting Chapter 1 Flashcards

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Questions and Answers

What is accounting?

Planning, recording, analyzing, and interpreting financial information

What is an accounting system?

A planned process for providing financial information that will be useful to management

What are accounting records?

Organized summaries of a business's financial activities

What are financial statements?

Financial reports that summarize the financial condition and operations of a business Signup and view all the answers

What is a service business?

A business that performs an activity for a fee Signup and view all the answers

What is a proprietorship?

A business owned by one person Signup and view all the answers

What is an asset?

Anything of value that is owned Signup and view all the answers

What are equities?

Financial rights to the assets of a business Signup and view all the answers

What is a liability?

An amount owed by a business Signup and view all the answers

What is owner's equity?

The amount remaining after the value of all liabilities is subtracted from the value of all assets Signup and view all the answers

What is the accounting equation?

An equation showing the relationship among assets, liabilities, and owner's equity Signup and view all the answers

What are ethics?

The principles of right and wrong that guide an individual in making decisions Signup and view all the answers

What are business ethics?

The use of ethics in making business decisions Signup and view all the answers

What is a transaction?

A business activity that changes assets, liabilities, or owner's equity Signup and view all the answers

What is an account?

A record summarizing all the information pertaining to a single item in the accounting equation Signup and view all the answers

What is an account title?

The name given to an account Signup and view all the answers

What is an account balance?

The amount in an account Signup and view all the answers

What is capital?

The account used to summarize the owner's equity in a business Signup and view all the answers

What is revenue?

An increase in owner's equity resulting from the operation of a business Signup and view all the answers

What is a sale on account?

A sale for which cash will be received at a later date Signup and view all the answers

What is an expense?

A decrease in owner's equity resulting from the operation of a business Signup and view all the answers

What are withdrawals?

Assets taken out of a business for the owner's personal use Signup and view all the answers

Study Notes

Accounting Fundamentals

Accounting involves planning, recording, analyzing, and interpreting financial information crucial for business management.
An accounting system is a structured process designed to provide useful financial information to management.

Financial Records and Statements

Accounting records are organized summaries that capture a business's financial activities, essential for tracking progress and compliance.
Financial statements are comprehensive reports that summarize the financial condition and operations of a business, often including balance sheets and income statements.

Types of Businesses

A service business is defined as an entity that performs activities for a fee, distinguishing it from product-based companies.
A proprietorship is a business owned by a single individual, representing the simplest form of business ownership.

Key Accounting Concepts

An asset refers to anything of value that a business owns, such as cash, inventory, or property.
Equities denote the financial rights to a business's assets, representing ownership interests.
A liability is defined as an amount owed by the business, including loans and debts.

Owner's Equity and Accounting Equation

Owner's equity is calculated as the remaining value after subtracting total liabilities from total assets, indicating the owner's stake.
The accounting equation expresses the balance among assets, liabilities, and owner's equity: Assets = Liabilities + Owner's Equity.

Ethics in Accounting

Ethics encompass the principles of right and wrong that guide decision-making processes in any professional context.
Business ethics focuses specifically on how ethical principles are applied in business decisions, impacting reputation and compliance.

Transactions and Accounts

A transaction is any business activity that alters the balance between assets, liabilities, or owner's equity.
An account is a detailed record that summarizes all information related to a specific item within the accounting equation.
Each account has a designated account title, which is its name, and an account balance, reflecting the current amount in the account.

Financial Performance

Capital is the account that summarizes the owner's equity, indicating the owner's total investment in the business.
Revenue represents an increase in owner's equity as a result of business operations, reflecting sales and services rendered.
A sale on account indicates a transaction where cash will be collected in the future rather than immediately.
Expenses represent decreases in owner's equity due to operational costs, impacting overall profitability.
Withdrawals are assets taken from the business for personal use by the owner, which can affect the owner's equity.

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Description

This quiz covers key terms and definitions from Chapter 1 of Accounting. It includes fundamental concepts like accounting, accounting systems, and financial statements. Test your knowledge on the basics of financial information management.