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Accounting Chapters1-3

Separate Entity
The financial reports of a business are assumed to include the results of only that business’s activities.
Assets
The resources owned by a business.
Comparability
Financial information that can be compared across businesses because similar accounting methods have been applied.
Stockholders’ Equity
The total amounts invested and reinvested in the business by its owners.
Expenses
The costs of business necessary to earn revenues.
Relevance
A feature of financial information that allows it to influence a decision.
Revenues
Earned by selling goods or services to customers.
Liabilities
The amounts owed by the business.
Faithful Representation
Financial information that depicts the economic substance of business activities.
Unit of Measure
The assumption that states that results of business activities should be reported in an appropriate monetary unit.
Accounts Payable
Liability/Balance Sheet
Accounts Receivable
Asset/Balance Sheet
Cash
Asset/Balance Sheet
Income Tax Expense
Expense/Income Statement
Selling and Administrative Expenses
Expense/Income Statement
Sales Revenue
Revenue/Income Statement
Notes Payable
Liability/Balance Sheet
Retained Earnings
Stockholders Equity/Balance Sheet
Journal entry
The results of transaction analysis in debits-equal-credits format.
A = L + SE; Debits = Credits
The two equalities in accounting that aid in providing accuracy.
Transaction
An exchange or event that has a direct and measurable financial effect.
Income statement, balance sheet, statement of retained earnings, and statement of cash flows
Four periodic financial statements.
Unearned Revenue
A liability account used to record the obligation to provide future services or return cash that has been received, before revenues have been earned.
Prepaid Expenses
A type of asset account used to record the benefits obtained, when cash is paid before expenses are incurred.
Accrual basis accounting
Record revenues when earned and expenses when incurred.
Expense recognition principle
Record expenses when incurred in earning revenue.
Revenue recognition principle
Record revenues when earned, not necessarily when cash is received.
Cash basis accounting
Record revenues when received and expenses when paid.

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