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35 Cards in this Set
- Front
- Back
economic event
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Any event that directly affects financial position of the co.
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External events
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Exhcange between the co and a separate econ entity.
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Internal events
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directly affect the financial pos of a co. but don't involve and exchange with others such as depr. use of supplies.
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Accounting Equation
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Assets=Liabilities+Equity
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Retained Earnings
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Net income - distribution to share holders (dividends)
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Debits on the ? Credits on the ?
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Left, right
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Permanent accounts
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Assets, liabilities, and shareholders equity at a point in time.
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Temporary accounts
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Represent changes in retained earnings caused by expense, revenue, gain loss trans. would be too costly to separate them out.
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Transaction analysis
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Process of reviewing the source documents to determine the dual effect on accounting equation and the specific elements involved.
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Journal
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Chronological record of events affecting a firm.
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Posting
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Involves transferring debits and credits recorded in individual journal entries into the specific accounts affected.
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To record the reciept of rent in advance the journal entry is:
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Cash
Unearned rent revenue (liability) |
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Unadjusted Trial balance
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a trial balance is a list of general ledger accounts along with their balances. Alloows us to check for completeness and prove the sum of the accounts debits equal credits.
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Prepayments
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Transactions in which they cash flow precedes expense or revenue recognition.
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Prepaid expenses
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represent assets recorded when a cash disbursement creates benefits beyond the current reporting period. The adjusting entry for this is a debit to an expense and a credit to an asset.
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Adjusting entry to record cost of supplies is
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Supplies expense
Supplies |
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To record expired rent
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Rent expense
Prepaid Rent |
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unearned revenue
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liability recorded when cash is received from customers in advance of providing a good or service. Adjusting entry required involves a debit to a liability and a credit to Revenue.
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To record previously unearned rent revenue journal entry
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Unearned Rent Revenue
Rent Revenue |
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Alternative approach is to expense all cash such as
Rent Expense..................24000 Cash..................................24000 Then the entry at the end of the month requires you to record the prepaid rent and reduce pg. 69 |
Pd 24,000 cash and expensed it all. The monthly cost is 2,000 so we debit prepaid rent for
Prepaid Rent..............22,000 Rent expense..................22,000 |
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Accruals
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involve transactions where the cash outflow or inflow takes place in a period subsequent to expense or revenue recognition. Adjusting entry is a debit to an expense and a credit to a liability
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To record accrual of salary Journal Entry
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Salaries expense..........5,500
Salaries Payabel...........5,500 |
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Journal Entry to accrue interest
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Interest Expense..........333
Interest payable.............333 |
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Failure to record an adjusting entry for an accrued liability will cause net income to be ? liabilitys will be?
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overstated, and liabilities understated.
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Accrued recievables
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involve situations when the revenue is earned in a period prior to cash receipt. Adjusting entry is to debit an asset, a recievable, and a credit to revenue.
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Journal entry to record interest revenue earned in Aug.
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Interest receivable............200
Interest REvenue..............200 |
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Estimates
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Accountants often must make estimates to comply with accrual model. one example will be depr and bad debt expense.
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Journal Entry to record bad debt expense
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Bad debt expense...........500
Allow for uncollectible........500 We don't reduce A/R directly instead we credit a contra account called allow for uncollectible to reduce it indirectly. Contra account is used to keep intact the A/R total amount of receivables outstanding. |
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Adjusted Trial balance
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Adjusted entries are now posted to the accounts.
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The income statement
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A change statement that summarizes the profit generating transactions that cuased shareholder's equity (retained earnings) to change during the period. Shows revenues minus expenses.
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Balance Sheet
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position statement that presents an organized list of assets, liabilities, and equity at a particular point in time.
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Current assets and current liabilities
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Time period is if they are shorter than a year.
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Statement of Cash flows
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Purpose is to summarize transactions that caused cash to change during the period.
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Statement of Shareholder's equity
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Discloses the sources of changes in the permanent shareholders' equity accounts.
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Closing process
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Serves to 1. reduce accounts (revenues, expenses, gains, and losses) to zero balances ready to measure activity in the upcoming period. and 2. the temp balances are closed to retained earnings to reflecct the changes that have occurred in that account during the period.
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