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27 Cards in this Set

  • Front
  • Back
Accounting Equation
Assets = Liabilities + Owners' Equity (or Stockholders' Equity)

Each transaction will affect one or more parts of the equation

Each transaction must balance AND the accounting equation must BALANCE
Resources; "Stuff we own"

Used to generate revenues
Creditors' claims against resources
Owners' claims against resources
Economic Event (Transaction)
has 2 sides: give and take
Double Entry Accounting
Debits ALWAYS = Credits
1) There may be multiple "Resources" & "Claims to Resources"

2) Each "Resource" or "Claim to resource" is set up as an account

IE. Cash in a bank, cash in a coffee can, note payable (debt) & Owners' Equity
Journal Entries
Good Form:
Date, Debit, Credit & Brief description of transaction
Simplified depiction of an account:

Account Name (Above)
Debits (DR) [Left]
Credits (CR) [Right]

Each T-account represents a single account in the general ledger
Netting a T-Account
Netting the Debits and Credits to find and Ending Balance (End. Balance)
Normal Balance
For each transaction, the total debits equal the total credits.
Accounting Equation Properties
Assets are inversely proportional to Liabilities AND Owners' Equity
Types of Business Entities
Proprietorship, Partnership & Corporation
Form: Proprietorship
Ease: Simple
Legal Liability: No Limit
Taxation: Non-Taxable
Limited Life: Yes
Capital Access: Limited
Form: Partnership
Ease: Simple
Legal Liability: No Limit
Taxation: Non-Taxable
Limited Life: Yes
Capital Access: Average
Form: Corporation
Ease: Complex
Legal Liability: Limited
Taxation: Taxable
Limited Life: No
Capital Access: Extensive
External (Financial Accounting):
Users: Investors, Competitors, Lenders, Government, Employees, the Press, Customers, Suppliers

Examples of Financial Reports:
1) Income State. 2) State. of Stockhldr Equity 3) Balance Sheet 4) State. of cash flows
Internal (Managerial Accounting):
Users: Management

Examples of reports:
Cost analyses
Performance reports
Capacity to make a difference in a decision
Reliability (Faithful Representation)
Free from error and bias
Financial Activities
Obtain capital/funding from external sources (investors/creditors and to repay them)
Investing Activities
Use capital to purchase long-term (LTA) assets to generate revenue and also to sell LTA assets
Operating Activities
Normal/repetitive revenue & expense transactions that are primary operations of business conducted to earn a profit
Timing and Recognition:
SALE is complete (revenue has been EARNED)
AMOUNT of Revenue can be measured
COSTS of generating revenue can be determined
PAYMENT is reasonably assured
Note: Company booking revenue must have the “risks & rewards” of ownership
Timing and Recognition:
As assets are consumed/used up in the process of generating revenues, the value of the asset is REDUCED (expense has been INCURRED)
Permanent Accounts
1) NOT CLOSED at year end
2) Balance Sheet accounts:
Assets, Liabilities & O/E (S/E)
3) Balances ARE carried forward to next period
Temporary Accounts
1) ARE CLOSED (brought to a zero balance) at end of accounting period
2) Income Statement accounts: Revenues & Expenses
3) Statement of Stockholders’ Equity account: Dividends
4) Balances are NOT carried forward to next period