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24 Cards in this Set
- Front
- Back
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3 Key accounting elements |
Assets
Liabilities
Owner's equity |
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Assets |
Items owned by business and will provide future benefits. Examples: Cash, merchandise, furniture, buildings, land, accounts recieveable. |
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Accounts Recieveable |
Asset to business.
Represents account of money owed to the business by customers as result of purchases "on account" or "on credit". |
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Liabilities |
Debts or obligations of the business that can be paid with cash good or other services.
Most common: Accounts payable and notes payable. |
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Accounts Payable |
Liability
an unwritten promise to pay a supplier for assets purchased. |
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Notes Payable |
Liability
Formal written promise to pay suppliers or lenders specified sums of money at definite future terms. |
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Owner's Equity |
Amount by which the business assets exceed the business liabilities.
AKA: Net worth or capital |
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Basic accounting equation |
Assets = Liabilities + Owner's Equity |
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Business transaction |
Economic event with direct impact on business.
Requires exchange with outside entity.
Must be able to measure in dollars.
Affects the accounting equation through specific accounts. |
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Account |
Seperate record used to summarize changes in each asset, liability and owner's equity of a business. |
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Analyzing business transactions |
3 questions: - What happened? - Which accounts are affected? Classify as an asset, liability or owner's equity. - How is the accounting equation affected? Debited or credited, and make sure the equation is balanced. |
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Owner's equity transactions |
To complete the accounting equations 3 additional elements in owner's equity = revenues, expenses and withdrawls.
Decrease O/E: Expenses and Withdrawls (drawing) Increase O/E: Revenues and investments. |
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Revenues |
Owner's Equity.
Amount charged for products sold or services performed. Recorded when earned (even if cash has not yet been recieved). Increases both assets (either Cash or A/R) and O/E. |
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Expenses |
Owner's Equity.
Decrease in assets or increase in liabilities as a result of efforts to produce revenues. Seperate account for each type of expense. Always decreases owner's equity. Expenses are incurred as 1)assets are consumed and 2) services are provided to the business. |
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Withdrawls |
Reduces O/E as result of owner taking cash or other assets out of business for personal use.
Reduces assets as well. |
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Accounting period concept |
Income determination can be made on a periodic basis (Month, quarter, year, etc)
Any accounting period of 12 months is a fiscal year. |
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Financial statements |
Income statement, statement of o/e, and balance sheet.
Uses transactions gathered and summarized in accounting equation.
Prepared primarily for users not associated with the company. |
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Income statement |
Profitability of operations for specific period of time.
Revenues- Expenses= net income or loss
Net income or loss then transferred to statement of O/E. |
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Statement of Owner's Equity |
Reports activities that affected O/E for a specific period of time.
Uses net income or loss from Income statement.
Beginning capital + Investments + Net income- withdrawls = ending capital |
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Balance Sheet |
Confirms the accounting equation has remained in balance.
Assets = Liabilities + Owner's Equity (uses ending capital from statement of O/E.) |
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Three basic phases of the accounting process |
Input
Processing
Output |
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Input |
Basic phase of the accounting process. Input of transactions |
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Processing |
Basic phase of accounting process.
Reorganizing the effect of transaction on assests, liabilities and owner's equity (revenues, expenses)
Steps: Identify accounts, classify accounts, determine increase or decrease upon account, and enter transaction and verify balance. |
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Output |
Basic phase of accounting process.
The financial statements |
