Summary: Foundations Of Accounting. Chapter 2

Read the summary and the most important questions on Foundations of Accounting. Chapter 2

• 1 General Ledger, Charts of Accounts, Accounts

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• What is the definition of economic events (transactions) in business finance?

  An event that directly affects the financial position of the company.

• What characterizes an external transaction?

  • Exchange between the company and a separate outside entity.
  • The company receives something in exchange for something else.

• What defines an internal transaction?

  • Economic events that directly affect the financial position of the company but don't involve an exchange transaction with another entity.
  • Occur within the company.

• What is the definition of accounts in business finance?

  A record that tracks changes, increases, and decreases in a specific asset, liability, equity, revenue, or expense item.

• How is each account represented in the general ledger?

  Each account has its own individual ledger account inside the General Ledger.

• How can the chart of accounts be conceptualized?

  Think of it as the "table of contents."

• 1.1 Asset Accounts

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• What is the journal entry for prepaid expenses when you consume or use it up?

  • Debit: Expense 
  • Credit:                 Prepaid Expense 

• What are examples of asset accounts?

  Examples: Cash, Land, Accounts Receivable, Notes Receivable, Equipment, Prepaid Expenses, Supplies, Buildings.

• What does the Accounts Receivable account track?

  Tracks amounts owed by customers from credit sales. Increases with sales on credit and decreases with customer payments.

• What does the Equipment account record?

  Records the cost of equipment. Depreciates over time (becomes an expense called Depreciation Expense).