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Exam II Accounting 2036
Chapter 5: Basic GAAP Principals
19
Accounting
Undergraduate 2
10/22/2007

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Term
Entity Concept
Definition
An organization stands apart from other organizations as a separate economic unit. (Including the Owner!)
Term
Transactions
Definition
An Interaction of economic activity between two entities.
Term
Source Document
Definition
Business record used as evidence that a transaction has occurred.
Term
Monetary Unit Concept
Definition
Always use Dollars ($$) to record transactions, even when in another currency.
Term
Historical Cost Concept
Definition
Concept that a company records its transactions based on the dollars exchanged at the time the transaction occurred
Term
The Company's economic resources are the Company's ______?
Definition
Assets
Term
The Company's debts are the Company's _____?
Definition
Liabilities
Term
The Owner's current investment is the ________?
Definition
Owner's Equity
Term
Contributions + Net Income - Withdrawals = ?
Definition
Owner's Equity
Term
Accounting Period
Definition
Time span for which a company reports its revenues and expenses.
Term
Matching Principle
Definition
To determine its net income for an accounting period, a company computes and deducts the total expenses from the total revenues earned during the period.
Term
Accrual Accounting
Definition
Recording revenues and related expense transactions in the same accounting period that goods or services are provided, REGARDLESS of when cash is received or paid.
Term
Adjusting Entries. Examples?
Definition
Journal entries that a company makes at the end of its accounting period to bring the company's revenue and expense account balances up-to-date and to show the correct ending balances in its asset and liability accounts. These always affect an [asset OR liability] AND an expense. (Example: Depreciation, Interest, Supplies used, expired rent, product sold now and delivered over several time periods)
Term
Dual Effect of Transactions
Definition
A company must make at least two changes in its assets, liabilities, or owner's equity when it records each transaction.
Term
A Balance sheet contains what three categories?
Definition
Assets, Liabilities & Owners Equity
Term
What is the accounting equation?
Definition
Assets = Liabilities + Owner's Equity.
Term
______ = Owner's contributions + net income - owner's withdrawals.
Definition
Owner's Equity
Term
Revenue Records the _______ NOT the________.
Definition
Revenue Records the activity NOT the cash collection.
Term
Cash Accounting
Definition
Transactions recorded when actual cash is received.
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