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College Accounting 21e Ch2

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The Accounting elements
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Assets, Liabilities and Owners Equitty
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Assets
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An accounting element, Items that are owned by a business and will provide future benefits.
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Examples of assets
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cash, merchandise, furniture, fixtures, machinery, buildings and land
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Accounts Receivable
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the amount of money owed to the business by its customers as a result of a sale.
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Liabilities
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an Accounting element, something owed to another business entity
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Accounts Payable
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A liability that represents, an unwritten promise to pay a supplier for assets purchased or services received.
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Notes Payable
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a liability that is a formal written promise to pay suppliers or lenders specified sums of money at definite future times.
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Owners equity
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An accounting element. The amount by which the business assets exceed the business liabilities.
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Net worth
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Another term for Owners Equity
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Capital
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Another term for Owners Equity
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Accounting equation
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Assets = Liabilities + Equity
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Business Transaction
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An economic event that has direct impact on the business.
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Account
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a separate record used to summarize changes in each asset, liability and owners equity
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Account titles
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provide a description of the particular type of asset, liability or owners equity.
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Revenues
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The amount a business charges customers for a product sold or services performed.
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Expense
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represents a decrease in assets (or increase in liability) as a result of a companies effort to produce revenues.
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Two main purposes of recognizing an expense
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to keep tract of the amount and type of expenses incurred and to show the reduction in owners equity.
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Withdrawls
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reduces owner equity as a result of the owner taking cash or other assets out of the business.
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Three financial statements prepared by a business entity
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Income statement, Statement of owners equity and a balance sheet.
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Income Statement
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reports the profitability of business operations for a specific period of time.
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Statement of owners equity
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Reports beginning capital plus net income less withdrawals to compute ending capital.
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Balance Sheet
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Reports a firms assets, liabilities and owners equity on a specific date.
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Three basic phases of accounting process
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Input, Processing and Output.
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Input
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step one in accounting process, Business transactions provide the necessary input.
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Prosessing
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step two in the accounting process. Recognize the effect of these transactions on the assets, liabilities, owners equity, revenues and expenses of a business.
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Output
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phase three in the basic accounting process.