Accounting equation 2. Asset 3. Balance sheet 4. Expense 5. Income statement 6. Liability 7. Net income 8. Net loss 9. Revenue 10. Statement of cash flows 11. Statement of owner’s equity Definition An economic resource that is expected to be of benefit in the future b. Debts that are owed to creditors c. Excess of total expenses over total revenues d. Excess of total revenues over total expenses e. The basic tool of accounting, stated as Assets = Liabilities + Equity f. Decreases in equity that occur in the course of selling goods or services g. Increases in equity that occur in the course of selling goods or services h. Reports on a business’s cash receipts and cash payments during a period i. Reports on an entity’s assets, liabilities, and owner’s equity as of a specific date j. Reports on an entity’s revenues, expenses, and net income or loss for the period k. Reports how the owner’s capital balance changed from the beginning to the end of the period
The Correct Answer and Explanation is:
Here are the correct matches between terms and definitions:
- Accounting equation – e. The basic tool of accounting, stated as Assets = Liabilities + Equity
The accounting equation is the foundational principle for double-entry bookkeeping. It shows that a company’s resources (assets) are financed by external debts (liabilities) and owner investment (equity). This equation must always balance, reflecting the idea that all resources have a corresponding claim, either by creditors or owners. - Asset – a. An economic resource that is expected to be of benefit in the future
An asset is any resource owned by a business or individual that is expected to provide future economic benefits. Examples include cash, inventory, buildings, and equipment. The value of an asset is based on its ability to generate revenue or reduce costs in the future. - Balance sheet – i. Reports on an entity’s assets, liabilities, and owner’s equity as of a specific date
The balance sheet is a financial statement that provides a snapshot of a company’s financial position at a particular moment in time. It lists the company’s assets, liabilities, and equity, helping stakeholders understand its financial health. - Expense – f. Decreases in equity that occur in the course of selling goods or services
Expenses represent the costs incurred in operating a business, such as rent, wages, and utilities. These costs reduce the owner’s equity and are necessary for generating revenue. - Income statement – j. Reports on an entity’s revenues, expenses, and net income or loss for the period
The income statement (also known as the profit and loss statement) summarizes a company’s revenues, expenses, and profits or losses over a specific period. It shows whether a company is generating a profit or operating at a loss. - Liability – b. Debts that are owed to creditors
A liability represents an obligation of a business, such as loans, accounts payable, or mortgages. It is something the company owes to external parties and needs to be settled over time, typically with cash or goods. - Net income – d. Excess of total revenues over total expenses
Net income is the profit a company earns after subtracting its expenses from its revenues. It is an important measure of a company’s profitability and is used to determine its financial health. - Net loss – c. Excess of total expenses over total revenues
Net loss occurs when a company’s total expenses exceed its total revenues, indicating that the business has not generated enough income to cover its costs during a given period. - Revenue – g. Increases in equity that occur in the course of selling goods or services
Revenue is the money earned from normal business activities, such as sales of goods or services. It increases the company’s equity by contributing to profit generation. - Statement of cash flows – h. Reports on a business’s cash receipts and cash payments during a period
The statement of cash flows shows the cash inflows and outflows over a period, helping to assess the company’s liquidity and overall cash management. It’s divided into operating, investing, and financing activities. - Statement of owner’s equity – k. Reports how the owner’s capital balance changed from the beginning to the end of the period
This statement tracks changes in the owner’s equity over a specific period, detailing investments made by the owner, withdrawals, and retained earnings (net income).
These terms and definitions form the core structure of financial accounting and reporting, providing crucial information to stakeholders, including investors, creditors, and management, to assess a company’s financial performance and position.
