Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 333

Accounting Terminology

Chapter 14

Assets = Liabilities + Owner’s Equity

Trans.

No.

Cash + Supplies + Accounts

Receivable,

Lisa Cook

+ Prepaid

Insurance

= Accounts

Payable

Office

Supply

+ Your

Name,

Capital

+ Rev. - Expenses - Drawing

1. 7500 + + + = + 7500 + - -


2. -300
   7200

+ +300 + + = + 7500 + - -

3. -550
   6650

+ 300 + + +550 = + 7500 + - -

Transaction 3

Paid cash for insurance $550

When a company pays cash for insurance, the two accounts affected are Cash and Prepaid Insurance.

Both Cash and Prepaid Insurance are classified as assets. The amount of insurance coverage a company

has increases when the company purchases insurance. Whenever a business uses cash, the amount in the

cash account is decreased.

To better understand why the term prepaid is used when analyzing insurance, think about prepaid cell

phones or student lunch accounts. An initial amount of money is paid upfront before any services are

required.

Student Guide