Acct 106

Front 1

Accounting

Back 1

Accounting is an information and measurement system that
identifies, records and communicates relevant, reliable, and
comparable information about an organizations business activities.

Front 2

GAAP

Back 2

Generally Accepted Accounting Principles (GAAP)—concepts
and rules that govern financial accounting. Purpose of GAAP is to
make information in accounting statements relevant, reliable and
comparable

Front 3

Accounting equation

Back 3

(Assets = Liabilities + Equity)—elements of
the equation include:
1. Assets—resources owned or controlled by a company that are
expected to yield future benefit. (i.e. cash, supplies, equipment
and land)
2. Liabilities—creditors’ claims on assets. These claims reflect
obligations to transfer assets or provide products or services to
others.
3. Equity—owner’s claim on assets. Also called net assets or
residual equity.

Front 4

Effects of transactions on the accounting equation

Back 4

The accounting equation must remain in balance after each transaction.

Front 5

Owners equity

Back 5

owners claims on assestsà equal to assets minus liabilities (net assets)

Front 6

net income

Back 6

residual income of a firm after adding total revenue and gains and subtracting all expenses and losses

Front 7

Debit and credit rules

Back 7

Left side is debt side. Right side is credit side
To increase and account amount is placed on the balance side
To decrese an account amount is placed on the side opposite its assigned balance side

Front 8

Steps in the recording process

Back 8

1. analyze each transaction and event from source documents
2. record relevant transactions and events in a journal
3. post journal information to ledger accounts
4. prepare and analyze the trial balance

Front 9

assets

Back 9

cash
accounts receivable
note recceiable
prepaid expenses
prepaid insurance
office supplies
store supplies
equipment
buildings
land

Front 10

liabilities

Back 10

claims by crediotrs against assets
accounts payable
note payable
unearned revenues
accured liabilities

Front 11

equity

Back 11

owners claim on compays assets

owners capital
owners withdrawals
diff kinds of revenue
expenses

Front 12

double entry accounting

Back 12

requires that each transation affect, and be recorded in, at least two accounts

Front 13

normal balance of accounts

Back 13

assets on left: threfore the left or debit side is the normal balance for assets

liabilities and equities on right, or credit side so normal balance for them

Front 14

withdrawals account

Back 14

withdrawals accounts represent decreses in quity, therefore they are assigned debit balances.

Front 15

journal entries

Back 15

1. analyze transaction and doc.
2. apply double entry acct.
3. journalize- record each transaciton in joural
4. post- each entry from journal to ledger

Front 16

general ledger

Back 16

record containing all the accounts a company uses

Front 17

prepare a trial balance

Back 17

list each account tittle and its amount in the trial balance. if account has a zero balance, list it with a 0 in the normal balance column
2. compute the total of debits balances and the total of credit balances
3. verify total debit equal total credit balance

Front 18

fiscal year

Back 18

12 consecutive months used to base annual finanacial reqports

Front 19

normal year

Back 19

12 months

Front 20

calendar year

Back 20

jan 1- dec 31

Front 21

accruals

Back 21

- revenues are recognized when earned and expenses are recognized when inccured

Front 22

deferrals

Back 22

asset used to enable cash paid out to a counterpart for goods or services to be received in a later accounting period when fulfilling the promise to pay is actually acknowledged

Front 23

cost principle

Back 23

accounting information is based on actual cost. Actual cost is considered objective

Front 24

matching principle

Back 24

- a company must record its expenses incurred to generate the revenue reported.

Front 25

full disclosure

Back 25

- a company is required to report he details behind financial statements that would impact users decisions.

Front 26

Business entity assumption

Back 26

- a business is accouted for separetly from other business entities, including its owner

Front 27

Time period assumption

Back 27

- presumes that the life of a company can be divided into time periods, such as months and years

Front 28

Monetary unit assumption

Back 28

express transactions and events in monetary, or money, units

Front 29

Going concern assumption

Back 29

, reflects assumption that the business will continue operating instead of being closed or sold

Front 30

unearned revenues

Back 30

When an individual or company receives money for a service or product that has yet to be fulfilled

Front 31

format of four financial statements

Back 31

1. statement of financial position
2. statement of comprehensive income
3. statement of chagnes in equit
4. statement of cash flow

Front 32

Compute straight-line depreciation :

Back 32

Depreciation is the process of allocating the cost of plant asset over its useful life in a systematic and rational manner (asset cost- Salvage Value)/ useful life

Front 33

book value

Back 33

The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation

Front 34

Compute profit margin-

Back 34

Used to evaluate operating results by measuring the ratio of a companys net income to sales

(net income / net sales revenues)

Interpreted as reflecting the portion of profit in each dollar of revenue

Front 35

Compute debt ratio

Back 35

the relationship between a companys liabilities and assets.

( total liabilities / total assets)
A higher ratio indicates that there is a greater probability that a company will not be able to pay its debt in the future.

Front 36

compute return on assets

Back 36

Option 1: Net Profit Margin x Asset Turnover = Return on Assets

Option 2: Net Income ÷ Average Assets for the Period = Return on Assets