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179 Cards in this Set
- Front
- Back
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Accounting
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Process of analyzing, classifying, recording, summarizing, and interpreting business trasactions in financial terms.
also calling book keeping. |
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economic unit
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Includes both business enterprises and not-for-profit entities, such as;
government bodies churches synagogues clubs public charities |
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ethics
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philosophy or code system of morality.
right or wrong nature. |
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transaction
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event directly affecting an economic entity that can be expressed in terms of money that must be recorded in accounting records.
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Accounts pay
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liability account used for short-term liabilities or charge acc's, usually due within 30 days.
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Assets
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Cash, properties, and other things of value owned by an economic unit or business entity.
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business entity
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business enterprise, sep and distinct from persons who supply assets it uses.
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liabilities
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debts or amounts owed to creditors
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capital
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owners equity
owner's investment in business. |
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equity
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value of a right to or financial interest in an asset or group of assets.
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Double-entry book keeping
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System by which each business transaction is recorded in at least 2 accounts and the accounting equation is kept in balance
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Fair market value
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Present worth of an asset of amount that would be received if asset were cold to an outsider on open market.
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Revenues
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Amount a business earns.
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Incurred
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record costs when they are incurred, aka use the item.
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Expenses
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costs incurred to generate revenue.
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Creditor
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one to whom money is owed
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Debtor
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person who owes money
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Separate entity concept
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concept by which a business is treated as a separate economic or accounting entity.
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Withdrawal
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Taking of cash or other assets out of a business by owner for their own use.
treated as temp decrease in owner's equity. |
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Sole proprietorship
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one-owner business
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normal balance
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plus side of T account
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Footings
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totals of each side of T account
recorded in small pencil written figures |
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Trial balance
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list of all acc balances to prove that total of all debit balances equals total of all credit balances
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Financial statement
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report prepped by accountants that summarizes financial affairs of a business.
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Income statement
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Financial statement showing results of business transactions involving revenue and expense accounts over a period of time.
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income statement equation
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Revenue-expenses=net profit [loss]
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Net income
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result when total revenue expenses total expenses over a period of time.
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Net Loss
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Result when total expenses exceed total revenue over a period of time.
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Statement of O.E.
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Financial statement showing activity in owner's equity, or capital account, over financial period.
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Statement of O.E. equation
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Capital+profit-[loss]-draw=new capital
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Balance Sheet
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Financial statement showing financial position of an organization on a given date.
Lists: balances of; assets liabilities owner's equity |
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Balance sheet equation
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Assets---Liabilities+capital (should balance)
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Transposition
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Error that involves switching around digits during recording of a number.
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Slide
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Error in placing decimal point in a number
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Financial position
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Resources or assets owned by an organization at a point in time, offset by claims against those resources and owner's equity...
Shown on Balance sheet |
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Report form
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form of balance sheet in which assets are placed at top and liabilities and owner's equity and placed below.
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Cost principal
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principal that a purchased asset should be recorded at actual cost.
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Cross reference
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Ledger account in Post, Ref Column of journal and journal page number in Post. Ref column of the ledger account.
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General Ledger
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Loose leaf book containing the activity by accounts of a business.
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Journal
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Book of original entry
1st line-debit 2nd line- credit |
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Journalizing
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process of recording a business transaction in a journal.
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Ledger account
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Complete record of transactions recorded in individual account.
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Posting
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Process of transferring figures from journal to ledger accounts
**Post from journal to ledger |
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Source documents
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Business papers that furnish proof a transaction has taken place;
Checks invoices receipts letters memo's |
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Two column general journal
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General journal which there are two amount columns.
One used for debit amounts and one used for credit amounts. |
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Accounting cycle
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sequence of steps in accounting process completed during fiscal period.
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Accrual
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recognition of an expense or a revenue that has been incurred or earning but has not yet been recorded.
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Accrued wages
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unpaid wages owed to employee's for time between end of last pay period and end of fiscal period.
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Adjusting entries
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Entries that bring books up to date at end of fiscal period.
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Adjustments
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internal transactions bring ledger acc's up to date.
end of each month. |
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Book value
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cost of asset minus accumulated depreciation.
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Contra account
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contrary to or a deduction from another account.
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Contra asset account
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Account that is contrary to or a deduction from its companion asset account.
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Depreciation
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expense based on expectation that asset will gradually usefulness due to time, wear and tear.
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Fiscal period
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Period of time covering a complete accounting cycle.
generally consecutive 12 months |
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Fiscal year
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Fiscal period consist of 12 consecutive months
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Matching principal
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revenue for one time period matched up with the related expenses for same time period.
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mixed accounts
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certain accounts that appear on trial balance with balances--partly income statements amounts and partly balance sheet amounts.
EXP: prepaid insurance and insurance expense |
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Straight line depreciation
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calculating depreciation in which cost of an asset, less and trade-in value, is allocated evenly over life of asset.
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Work sheet
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paper used to record necessary adjustments and provide up-to-date account balances needed to prepare financial statements.
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Assets= liabilities+owner's equity
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Real or permanent
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+revenue-expenses-draw
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*normal or temporary
*effect owner's equity account (adjusts) *Close to start new for next month. |
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Close revenue to
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income summary
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Close expense to
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income summary
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Close income summary to
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capital
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Close draw to
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capital
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Expense greater than revenue=
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net loss (debit)
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Accrual basis of accounting
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Revenue recorded when earned not matter when received.
Expenses recorded when incurred not matter when paid. |
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Cash Basis
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Recorded only when its received in cash.
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Modified cash basis
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(hybrid method)
combo of cash and accruel. -insurance and depreciation- |
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Closing entries
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made at end of a fiscal period to close off revenue, expense, drawing account to make balances of temporary-equity accounts equal to zero.
**adjust the capital account. |
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Income summary account
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brought into existence in order to have a debit and credit in each closing entry.
Revenue and expense acc brought into this acc to calculate net income or net loss. |
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Interim statements
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prepared during fiscal year, covering a period of time less than 12 months.
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Nominal or temp-equity accounts
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apply to one fiscal period and are to be closed at end of that fiscal period. such as;
revenue expense income summary drawing REID!! |
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Post-closing trial balance
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Listing of final balances of real accounts at end of fiscal period.
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Real or permanent account
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remain open (asset, liabilities, capital in O.E.) and have balances that carry over to next fiscal period.
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Interest
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I=P x R x T
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banker's year
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360 days
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bank reconciliation
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Accountant determine if and why difference in bank statement balance and cash account in biz's general ledger.
True balance of cash account. |
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Blank endorsement
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no restrictments
only signs on back of check |
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Canceled checks
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check issued by depositor that have been paid by bank and listed on bank statement.
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Cash funds
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Separate held reserves of cash set aside for specific purposes.
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Change funds
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cash funds used by a biz to make change for customers who pay cash for goods and services
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Collections
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payments collected by bank and added to customer's bank account in form of credit memo
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Denomination
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coins and currency
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deposit in transit
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deposit not recorded on bank statement because deposit made late.
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Drawer
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party who write check
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Electronic funds transfer
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EFT-thru electronic terminal such as computer, magnetic tape, or teli
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interest income
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amount earned from lending money to another person or business.
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Internal control
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plans and procedures build into accounting system to;
protect assets against fraud and waste, provide accurate accounting data, promote efficient operation, encourage adherence to management policies |
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MICR
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Magnetic ink character recognition
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Outstanding check
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written by drawer and deducted on their records but not reach bank for payment and not deducted from bank balance by time bank issue statement.
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Payee
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person to whom a check is payable
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Petty cash fund
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cash fund used to make small, immediate cash payments.
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Petty cash payments record
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record indicating amount each petty cash voucher, accounts to which it should be charged, and purpose of expenditure
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Petty cash voucher
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form stating who requested cash from petty cash fund, signed by person in charge of fund and person who received cash. Indicating purpose of petty cash payment.
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qualified endorsement
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avoid future liability incase of NSF.
"without recourse" |
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Restrictive endorsement
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"pay to the order of, for deposit only"
restricts any further negotiation of check, not valid for any other purpose. |
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service charge
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form of debit memo
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Special journals
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books of original entry used to simplify recording process.
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Sales journal
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record sales of merchandise sold ON ACCOUNT ONLY
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Purchase journal
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Record purchases of merch purchased ON ACCOUNT ONLY
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Cash receipts journal
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Record all transactions that include credit to cash, such as sales, checks received, or interest earned on checking account.
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Cash payments journal
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Record all transactions that include a credit to cash, such as payments by check or bank service charges.
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Merch inventory
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consist of a stock of goods that company buys and intends to resell for profit.
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Sales account
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revenue account used for recording sales of merch
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purchases account
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strictly to record cost of merch bought for resale
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Sales returns and allowances account
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record physical return f merch by customers or a reduction in bill because merch was damaged.
Treat as deduction from sales. |
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Sales tax payable account
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record tax levies by a state or city government on retail sale of goods and services.
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Purchases returns and allowance account
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record companys return of merch it has purchased from suppliers or reduction in bills because of damages merch.
Treat as deduction from purchases |
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Sales/purchase discounts account
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record cash discounts granted for prompt payments.
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freight in account
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record transportation charges on incoming merch intended for resale.
Debits to acc increase cost of purchases. |
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accounts rec ledger
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maintained to know how much each charge customer owes a biz.
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subsidiary ledger
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acc rec ledger, contain acc's of all charge customers.
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controlling account
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Acc Rec account in general ledger
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Acc Pay Ledger
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Subsidiary ledger, consists of individual acc's for all creditors.
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Calendar year
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12 month period beginning on jan 1st and end dec 31.
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Current tax payment Act
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(income tax withholding)
require employers to withhold and pay to US treasury employee funds. |
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Employee
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work for compensation and under control of employer.
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Employee individual earnings record
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Supplementary record for each employee showing a personal payroll data and yearly cumulative earnings, deductions, and net pay.
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Employee's Withholding certificate
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w-4
specify number of allowances claimed by each employee to give employer authority to withhold money for an employee's fed income taxes and FICA taxes |
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Exemption
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amount of employee's annual earnings not subject to tax for taxpayer, spouse and childred
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fair labor standards actt
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FLSA
1938 min standards for wages and overtime, include provisions related to child lobor and equal pay for equal work. |
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FICA taxes
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SS tax plus medicare tax, paid by both employee and employer.
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gross pay
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total amount employees pay before deductions
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Medicare taxes
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fed gov taxes levies on employee's and employer's.
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Net pay
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gross pay minus deductions
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payroll bank account
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special checking account to pay company employee's
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payroll register
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multi column form prepped for each payroll period listing earnings, deductions, and net pay.
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SS act of 1935
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Provide for worker retirement funding through deductions from wages and matching from the employers.
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taxable earnings
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amount of employees earnings subject to tax
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wage-bracket tax tables
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chart provide amounts to be deducted for income taxes based on amount of earnings, marital stat, kids.
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Employer ID number
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Number assigned to employer by internal revenue service for use in submission of reports and payments for FICA and fed income tax withheld.
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FUTA
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levied on employer
= to .8% of first 7000 of total earnings. |
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Form 940
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Annual report filed by employers show total wages paid to employees.
total wages subject to; *FUTA *total FUTA employers annual red unemplyment tax return |
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Form 941
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QUARTERLY
shows; tax liability for withholdings of employee's fed income tax and FICA tax and employers share of FICA tax. Deposits made in quarterr listed on employers quarterly fed tax return. |
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Form W-2
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containing info about employee earnings and tax deductions for year.
Wage and tax statement |
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Form W-3
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Annual report sent to SS administration listing total wages and tips, total SS and Medicare taxable wages and withholdings.
aka Transmittal of wage and tax statements. |
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Payroll tax exp
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general exp acc used for record employers matching portion of FICA tax, FUTA, and state unemployment tax
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Quarters
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3 months, calendar quarters
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SUTA
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Only on employer
generally 5.4% or higher of first 7000. to unemployed workers. |
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Periodic inventory system
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system under which buying of merch during year recorded as debit to purchases and credit to ACC PAY or cash.
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Perpetual Inventory System
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Buying of merch during year recorded as debit to merch inventory and credit to ACC pay or CASH.
Good for finding out inventory amount and cost of goods sold. |
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Discounts: Purchase vs.Sell
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2/10-net 30
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FIFO
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first in first out
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Horizontal analysis
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Describe changes in dollar amounts and percentages that occur when comparing same line item between 2 or more time periods...
What is change that occured with each line item from period to period? |
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Horizontal calculation
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-calc difference btwn the 2 periods for each line item
-take difference and divide by base year amount. |
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Vertical analysis
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F/A technique used to show relationship btwn single line item to some total on a single statement.
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Vertical: Income statement:
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Total is total sales or total revenue
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Vertical: Balance sheet
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total is numeral equivalent to total assets.
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With vertical both dollar amounts and percentages are presented to provide?
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more complete picture of the data
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Common size statements
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statements which are stated in terms of percentages only.
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Usefulness of common size
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compare one company with another similar company as well as industry norms
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Advantage of common size
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quick and broad analysis of line items with comparison point.
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limitation of common size
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w/o dollar amounts, one can't determine if or if not the companies are worthy of comparison.
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standards of comparison
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**Key to FSA**
FSA cant be without come comparison data. |
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Comparison to what?
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*target data to own.
*competition data *industry averages |
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Comparison, how to get?
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FFDA for its own clients
OGR for its members NISM for its members NFDA occasionally |
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Weakness of SOC
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should be comparable.
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Ratio analysis, TESTS:
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Profitability
liquidity asset utilization activity |
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Profit margin on sales purpose
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net income to be used will be net income before income taxes.
to understand profitability of biz. |
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Profit margin on sales equation
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net income/net sales
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Return on total assets
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owners need to understand WON their assets are being put to use in effective manner.
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Return of total assets equation
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net income/average total assets
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return on investment
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define the measure of investment
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return on investment equation
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net income/total owner's equity
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Tests of liquidity
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ability of biz to pay current and future debts
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Current ratio
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aka: Working capital ratio.
Higher number the better Rule of THUMB: at least 2.0 |
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Current ratio equation:
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current assets/current liabilities
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Quick ratio Acid test
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measure ability of company to meet current obligations if biz were to close.
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Quick ratio equation
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quick assets/current liabilities-(cash+marketable securities+et receivables)/CL
1 is acceptable for QR |
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Marketable securities
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*Investments in companies name
*bonds *quickly converted into cash |
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Net receivables
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net of bad debts
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Activity ratios
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*Acc Rec turnover
*Age of A/R *Inventory turnover *Age of inventory |
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Acc Rec Turnover
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measure collection efficiency of firm and average time required to convert amounts owed to firm into cash.
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Acc rec Turnover equation
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Net credit sales/[(begin A/R+ End A/R) 2]
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Inventory turnover
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Amount of time it takes to turnover $1 of merch into profitable sales dollar or how quickly inv is sold
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Inventory turnover equation
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CGS/[begin inv+end inv)/2]
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Average age of inventory
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365/Inventory turnover
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