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24 Cards in this Set
- Front
- Back
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define business transaction |
event that causes the financial positon of a business to change financial event that causes change in financial position |
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define source documents |
- original record of the transaction - provides accounting personnel with the information they need to process the transaction properly |
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examples of soruce documents include |
hydro bills, telephone bills, cheque copies, store receipts, cash register summaries, and credit card slips |
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these examples provide |
proof of payment, proof of purchase, and reference |
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what happens to source documents |
- depending on the size of the business, the source document may move from person to person or department to department - they are then eventually filed because owners, managers, auditors, and others may want to ask questions |
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remember: |
- accounting entries are made from business papers known as source documents - source documents are kept on file for reference purposes and are proof of transactions |
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objectivity is a |
long-standing principle related to source documents |
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the objectivity principle requires that |
a business accounting be recorded on the basis of clear, verifiable evidence |
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the principle means that |
- different people looking at the evidence will arrive at the same values for the transaction - this means that the transactions will be recorded on fact, not personal opinion or feelings |
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what is the best objective evidence for a transaction |
source document |
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example of a best objective evidence |
- the bill received from the retailer for the purchase of a new desk - the soruce document shows the amount agreed to by the buyer and the seller who are usually independent of eachother |
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explain the objectivity principle |
- requires that business's accounting must be recorded on the basis of clear, verifiable evidence - this principle means that different people looking at the evidence will arrive at the same value for the transaction - the soruce document for a transaction is an example |
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define equation analysis sheet |
tool for displaying individual transactions and the new financial position resulting from each transaction |
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equity is a |
residual claim |
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when does equity change |
- if the assets decrease and theres a corresponding liability decrease, the owner's equity will not change - if assets decrease and liabilities are unchanged, the equation must be balanced by a decrease in the owner's equity |
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steps 1 in analyzing a transaction |
- identify all assets and liabilites that must be changed and make all necessary changes - use logic and common sense
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step 2 in analyzing a transaction |
- see if the owners equity has changed |
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step 3 in analyzing a transaction |
- make certain that least two of the individual items has changed - its possible for several items to change, but there can never be only 1 change |
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step 4 in analyzing a transaction |
make sure equation is still balanced - fundamental accounting equation must be respected: assets = liabilties + equity |
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how do you know if a business is better off after a transaction |
by seeing if the equity has increased or decreased |
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why is the equation analysis sheet necessary |
because it is a tool for displaying idividual transactions and fhe new financial positon resulting fom each transaction |
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what is transferred from the balance sheet to the equation analysis sheet |
assets liabilities and capital |
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what do good accountants rely on besides their memory to keep track of the bussiness's finances? |
common sense clear thinking thorough understanding of accounting theory |
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why msut accounting be done correctly |
to prevent financial disaster |
