Journal Entries: Business Formation Example definitions Flashcards
Journal Entries: Business Formation Example definitions
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Journal Entry A formal record in accounting that captures the details of a business transaction, specifying accounts affected and amounts debited or credited. Business Formation The initial process of legally creating a new company, often involving owner investment and issuance of ownership shares. Common Stock An equity account representing ownership in a corporation, typically issued to investors in exchange for capital. Asset A resource owned by a company, such as cash, that provides future economic benefit and is increased by debits. Equity The residual interest in the assets of a company after deducting liabilities, reflecting ownership value. Debit An accounting entry that increases asset or expense accounts and decreases liability or equity accounts. Credit An accounting entry that increases liability or equity accounts and decreases asset or expense accounts. Accounting Equation A foundational principle stating that assets equal the sum of liabilities and equity, ensuring balance in financial records. Cash A liquid asset account representing currency or funds available for immediate use by a business. Owner Investment Funds contributed by an individual or group to start or grow a business, typically exchanged for equity. Liability An obligation or debt owed by a company to outside parties, not affected in this business formation example. Transaction An economic event recorded in the accounting system, impacting at least two accounts to maintain balance. Accounting Cycle A series of steps in processing financial transactions, from initial entry to preparation of financial statements. Financial Balance The state achieved when total assets equal the sum of liabilities and equity, as required by the accounting equation. Ownership The legal right to possess a portion of a business, typically represented by shares or equity accounts.