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19 Cards in this Set
- Front
- Back
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Accounting Transactions
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An economic exchange between entities that are accounted for and reflected in financial statements
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What is always involved in a transaction?
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Two parties
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What are the two parties of a transaction?
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Buyer and seller
- they usually gain something and lose something |
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What is the input to the accounting process?
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Transaction
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What is the output to the accounting process?
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Financial Statment
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What are the two sources of money?
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External and Internal
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What are the external sources of money? (x3)
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- Share/Owners' Capital (Equity)
- Debt Capital (Interest Bearing Liabilities - current or non-current) - Working Capital (All other Liabilities - current or non-current) |
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What is the internal source of money?
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Retained earnings and other reserves (Equity)
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What does a business use the financing (liabilities and equity) for?
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Purchasing assets
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What is the short accounting equation and what is the MUST?
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A = L + E
MUST ALWAYS BALANCE |
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What is another way to think of the short accounting equation?
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EQUITY(Net Assets) = Assets less liabilities
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How is the accounting equation expressed in words?
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Retained Earnings beginning of the period (starting value)
PLUS (Income - Expenses)/Profit or Loss (addition) LESS distributions during the period (subtraction) EQUALS retained earnings at the end of the period (closing value) |
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What is Owners' Equity made up of?
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Share Capital + Retained Earnings
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Which values go on the balance sheet?
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Beginning and Closing values
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Where do the beginning and closing values go?
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On the balance sheet
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Which values are the transactions?
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The additions and subtractions
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What are the additions and subtractions?
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The transactions
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Double Entry Accouting
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Every transaction has two entries and gets recorded in (at least) two places
Each transaction must cause at least two changes to the accounting system because the equation MUST be kept balanced |
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If there is an increase in an asset, there must be:
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- Either an increase in liabilities and/or equity
- OR a decrease in another asset |
