Flash cards for all the vocabulary words in the REA Financial Accounting CLEP study guide. Includes all the formulas, and the CLEP Clues in the text. This set is for Chapter 3 - Making Money

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  • Account

    A place on the financial books to keep track of financial information that the owner wants to know.

    Accumulated depreciation

    The contra-asset account that accumulates all the depreciation of long-lived assets over the years.

    Chart of accounts

    The official list of all business accounts.

    Contra account

    An account that gets subtracted from its related account. Contra accounts always get reported as negative numbers.

    Contra asset account

    An account that gets subtracted from an asset account.

    Cost of goods sold

    The cost to the business of the goods that it sells.

    Depreciation expense

    The amount of long-lived assets used up during operations.

    Draw - See Withdrawal

    Money that the owner takes from the business, or money in the business account that the owner spends on personal bills.


    Money is "expensed" if it is gone forever - if there remains no useful asset as a result of the spending. The opposite of capitalized.


    Accounts that explain why assets went down from operations.


    Accounts that explain why assets went up from operations.

    Income statement

    The financial report that shows the result of business operations over a period of time.


    A supply of items a business has on hand.


    A word that means a subtraction has occurred.

    Net income

    Income - Expenses = Net Income


    When numbers are "netted", they combine so that the negative numbers get subtracted from the positive numbers.

    Percentage analysis

    A financial statement analysis technique in which one number is assigned as 100% and all other numbers are expressed as a percentage of the first number. In balance sheets, the key number is total assets. In income statements, the key number is sales.


    An income account that explains the increase in business assets as a result of selling goods.

    Statement of owner's equity

    A financial statement that calculates an end-of-period balance of the owner's equity account.


    A tool to keep track of the ups and downs in accounts. The ups go on one side of the T and the downs on the other side.

    Transportation expense

    The cost of business airplane fares, trains, and long-distance buses.

    Travel expense

    The cost of living while away from home on business.


    Money that the owner takes from the business, or money in the business account that the owner spends on personal bills.

    Book value of a long-lived asset.

    Purchased price - Accumulated depreciation = Book value

    Ending owner's equity formula.

    Equity-Beginnning + Net Income - Withdrawal - Equity-Ending

    Gross profit.

    Sales - Cost of goods sold = Gross profit.

    Income statement formula.

    Sales - Cost of goods sold = Gross profit
    Gross profit - Expenses = Net income


    When you see the word "net, know that a subtraction has taken place: A - B = Net A.


    You will be tested on the entire income statement equation. Memorize it and be able to fill in any missing number:
    Sales - Cost of goods sold = Gross profit
    Gross profit - Expenses = Net Income


    Income - Expenses = Net Income


    The CLEP test will throw in personal spending information and ask you to calculate net income. Don NOT consider the withdrawal as a business expense.

    Type of account - Payable or Deferred.

    Liability account

    Type of account - Owner's name, Withdrawal, Dividend, Stock.

    Equity account

    Type of account - Sales, Income, or Revenue.

    Income account

    Type of account - Any account with "exp" at the end of it.

    Expense account

    Type of account - Receivable, Prepaid, Investment, Inventory.

    Asset account. Many asset accounts merely list the name of the asset, such as "land" and "equipment" without any special identifying word. Whenever CLEP questions list an account without one of these key words, you should assume that it is an asset account.

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