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36 Cards in this Set
- Front
- Back
Accounting
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Accounting is an information and measurement system that
identifies, records and communicates relevant, reliable, and comparable information about an organizations business activities. |
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GAAP
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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 |
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Accounting equation
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(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. |
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Effects of transactions on the accounting equation
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The accounting equation must remain in balance after each transaction.
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Owners equity
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owners claims on assestsà equal to assets minus liabilities (net assets)
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net income
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residual income of a firm after adding total revenue and gains and subtracting all expenses and losses
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Debit and credit rules
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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 |
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Steps in the recording process
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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 |
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assets
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cash
accounts receivable note recceiable prepaid expenses prepaid insurance office supplies store supplies equipment buildings land |
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liabilities
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claims by crediotrs against assets
accounts payable note payable unearned revenues accured liabilities |
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equity
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owners claim on compays assets
owners capital owners withdrawals diff kinds of revenue expenses |
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double entry accounting
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requires that each transation affect, and be recorded in, at least two accounts
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normal balance of accounts
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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 |
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withdrawals account
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withdrawals accounts represent decreses in quity, therefore they are assigned debit balances.
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journal entries
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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 |
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general ledger
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record containing all the accounts a company uses
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prepare a trial balance
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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 |
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fiscal year
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12 consecutive months used to base annual finanacial reqports
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normal year
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12 months
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calendar year
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jan 1- dec 31
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accruals
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- revenues are recognized when earned and expenses are recognized when inccured
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deferrals
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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
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cost principle
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accounting information is based on actual cost. Actual cost is considered objective
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matching principle
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- a company must record its expenses incurred to generate the revenue reported.
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full disclosure
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- a company is required to report he details behind financial statements that would impact users decisions.
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Business entity assumption
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- a business is accouted for separetly from other business entities, including its owner
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Time period assumption
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- presumes that the life of a company can be divided into time periods, such as months and years
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Monetary unit assumption
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express transactions and events in monetary, or money, units
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Going concern assumption
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, reflects assumption that the business will continue operating instead of being closed or sold
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unearned revenues
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When an individual or company receives money for a service or product that has yet to be fulfilled
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format of four financial statements
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1. statement of financial position
2. statement of comprehensive income 3. statement of chagnes in equit 4. statement of cash flow |
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Compute straight-line depreciation :
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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
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book value
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The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation
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Compute profit margin-
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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 |
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Compute debt ratio
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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. |
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compute return on assets
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Option 1: Net Profit Margin x Asset Turnover = Return on Assets
Option 2: Net Income ÷ Average Assets for the Period = Return on Assets |