Term
Three accounting activities |
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Definition
- Identification (identify economic events)
- Record (classify and summarize)
- Communication (prepare accounting reports) (Analyze and interpret for users)
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- Companies record assets at their cost. (never changhe the cost- always record for what you buy it for.)
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Term
Economic entity assumption |
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Requires that the activities of the entity be kept separate and distinct from the activities of its owner and all economic entities.The economic entity assumption states that there should be a particular unit of accountability. |
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A business owned by one person |
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2 or more business owners and are held liable for their partners actions |
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A business organizes a separate legal entity under the state corporation law and having ownership divided into transferrable shares of stock. (owners are stockholders and they own limited liability) |
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Term
Basic accounting equation |
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Definition
Assets = Liabilities+ stockholders equity
liabilities- anything with payable at the end (accounts payable, notes payable,wages payable, taxes payable)
Stockholders equity- common stock (money you get from selling stock) |
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Term
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Definition
Made up of 3 items- revenues, expenses, dividends.
basically its all of your leftovers
revenues increase retained earnings expenses and dividends decrease it |
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Term
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Reports the assets liability and stockholders equity of a company at a specific date.
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Presents the reveues and expenses and resulting net income or net loss of a company for a specific period of time.
(revenues -expenses= net income or loss) |
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Term
Retained earnings Statement |
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Definition
Summarizes the changes in retained earnings for a specific period of time.
(retained earnings at beginning of period + net income- dividends= retained earnings at the end of the month.) |
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Definition
Net income- is when your revenues exceed your expenses.
Net Loss- Expenses are more than your revenues. |
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Definition
Account- An accounting record of increases and decreases in a specific asset, liability, or owners equity item.
Account consists of three parts- a title, a left or debit side, and a right or credit side. |
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Debit- Left
Credit- Right |
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Debits = Credits
system provides a logical method for recording transactions. it also helps insure the accuracy of the recorded amounts. (checks and balances system) |
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The normal balance of an account is on the side where an increase in the account is recorded.
ex= normal side for assets is the left side,
Liabilities= right side
common stock= right
Retained earnings = right
dividends = left |
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Term
Steps in the Recording Process |
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Definition
- Analyze each transaction for its effects on the accounts
- enter the transaction information in a journal
- Transfer journal info into appropriate accout in the ledger
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Term
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Definition
the journal is reffered to as the book of original entry.
It shows debit and credit effects on specific accounts and the most basic journal use is the general journal. contributions are- discloses in one place, the complete effects of a transaction, also it provides a chronological record of transactions, helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared. |
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Transferring journal entries to the ledger accounts.
(page 63)
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The entire group of accounts maintained by the company is the general ledger. Every company has a general ledger that contains all the asset, liability and stockholder equity accounts.
(page 63) |
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A trial balance is a list of accounts and their balances at a given time. They list accounts in the order of which they appear in the ledger and they typically prepaired at the end of the accounting period. The primary purpose of a trial balance is to prove (check) debits =credits after posting.
Trial balances are very useful in creating financial statements |
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Term
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Definition
Accountants (divide) the economic life of a business into artificial time periods.
(pg. 98) |
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Term
Revenue Recognition Principle |
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Definition
Dictates that companies recognize revenue and the accounting period in which it was earned.
Accrual basis of accounting- you record stuff in the periods of when the events occur and most of the time, public companies record when its earned |
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Term
Matching Principle (Expense recognition priciple) |
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Definition
| The practice of expense recognition dictates that expenses be matched with revenues. |
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Term
Adjusting Entries (Why, When, and What) |
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Definition
Adjusting entries ensure that the revenue recognition and expense recognition principles are followed.
A company must make adjustment entries every time it makes a financial statement. It also analyzes each account in the trial balance to determine wether it is complete and up to date
(Pg.101) |
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Term
Types of adjusting entries |
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Definition
adjusting entries are either classified as deferrals or accruals.
deferrals- prepaid expenses, Unearned revenues
Accruals- Accrued revenues, Accrued expenses |
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| Are expenses payed in cash and recorded as assets before they are used or consumed. Prepaid expenses are costs that expire through the passage of time or use. |
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Cash received and recorded as liabilities (Unearned Revenue) before a revenue is earned.
opposite of prepayed expenses |
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| Revenues earned but not yet received in cash or recorded |
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| Expenses incurred but not yet payed in cash or recorded |
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Definition
things depreciate over time
is a conture asset account to offset a depreciation
Normal balance is on the right side |
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Term
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Definition
Formally recognize in the ledger the transfer of net income or net loss and dividends to retained earnings. the retained earnings statement shows the results.
Closing entries also produce a zero balance in each temporary account. |
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| relates only to a given accounting period and include all income statement accounts and the dividends account. |
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| All of the balance sheet accounts such as assets, stockholders equity, and liabilities |
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Term
Post Closing Trial Balance |
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Definition
| Is created from the ledger once all of the closing entries have been journalized and posted. The post closing trial balance lists the permanent accounts and their balances after journalizing and posting of the entries. |
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Term
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Definition
| Is used only in closing. the companies close the revenue and expense accounts to a temporary account called income summary and they transfer the resulting net income or net loss from this account to retained earnings. |
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Term
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Definition
Generally contains standard classifications such as; assets-current assets, long term investments, property plant and equipment, and intangible assets.
Liabilities and stockholders equity- current liabilities, long term liabilities, and stockholders equity. |
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Term
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Assets that a company expects to convert to cash or use up within one year.
ex: Cash, short term investments, accounts receivables, notes receivable, inventories, supplies, prepaid insurance. |
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Investments in stocks and bonds of other companies that are normally held for many years.
Ex: Investment in stock of a company and investment in real estate |
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Property Plant and Equipment |
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Are assets with relatively long useful lives that a company is currently using and operating the business.
ex: land, office equipment, less accumulated depreciation, land improvement. |
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Long lived assets that do not have physical substance yet often are very valuable.
Ex: Goodwill, copywrites, patents, trademarks, and trade-names |
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