ECON 2710 INTRODUCTION TO FINANCIAL ACCOUNTING
CHAPTER TWO: ANALYZING AND RECORDING TRANSACTIONS
TYPES OF ACCOUNTS
ACCOUNT: a detailed record of increases and decrease in a specific asset, liability, or equity item; each
item is its own separate account; such as cash account, supplies account, equipment account etc.
RECEIVABLES: amounts that businesses expect to receive in the future.
ACCOUNTS RECEIVABLE: services performed or goods sold in return for promises to pay
in the future; account is increased by services performed or good sold on credit and
decreased by customer payments.
NOTES RECEIVABLE: (PROMISSORY NOTES) unconditional written promise to pay a
definite sum of money and/or on a set future date(s).
PREPAID EXPENSES: payments made ahead of time for assets not to be used until later; such as
prepaid rent and office supplies; as prepaid assets are used, the cost becomes an expense.
PAYABLES: amounts that businesses promise to pay later for an asset or service already
ACCOUNTS PAYABLE: (to purchase on credit) promise to pay late for purchases of
merchandise, supplies, equipment, or services.
NOTES PAYABLE: formal recognition of promise to pay later by signing a promissory
UNEARNED REVENUES: created when a customer pays in advance for product or services;
account is satisfied upon delivery of product or service already paid for; such as magazine
subscriptions, gift certificated etc.
OWNER CAPITAL: records owner’s investments; refers to sum of business resources owned by
OWNER WITHDRAWALS: records sums of money taken out of the business by the proprietor or
partners of the business for personal uses. REVENUE AND EXPENSES: such as sales earned, and advertising expenses.
The balance of an account is determined by the difference between the debit and credit of the account;
refers to the remaining amount of all transactions within the account.
DEBIT: increases asset, expenses, and owner’s withdrawals accounts; decreases liability, owner’s capital