Term
|
Definition
•Service
•Provides service to customer
•Examples: Accounting firms, law firms, auto repair
•Merchandising
•Sells products to customers
•Examples: Grocery and sporting goods stores
•Manufacturing
•Produces goods
•Example: Automobile manufacturers
|
|
|
Term
|
Definition
Similar to proprietorship, except has two or more owners
Business income is divided among partners
Partners are taxed on share of income on their personal tax returns
|
|
|
Term
|
Definition
Business that has one owner
Owner is personally responsible for debts of business
Income earned by business is reported on owner’s personal tax return
|
|
|
Term
|
Definition
Separate legal entity
Limits owners’ personal liability
Owners = shareholders
Corporation is taxed separately
Distributions to owners are taxed at shareholders’ income tax rate
|
|
|
Term
|
Definition
Combines legal protection of corporate form without the double-taxation
Small corporations can elect to be taxed as an S-Corporation
Corporate income reported on owners’ personal tax returns
Corporate earnings must be distributed based on percentage owned
|
|
|
Term
| Limited LIability company |
|
Definition
Similar to corporation
Separate legal entity
Limited liability of owners
Similar to partnership
Income of company reported on owners’ personal tax returns
Flexibility on how earnings are distributed among owners
|
|
|
Term
| Generally Accepted account principles (GAAP) |
|
Definition
Rules, principles and concepts that govern financial accounting in the United States
Financial Accounting Standards Board (FASB) establishes standards for financial reporting
Objective is to provide useful information for lending and investing decisions
|
|
|
Term
|
Definition
| Liabilities + Stockholders Equity |
|
|
Term
|
Definition
—Recording effect of transaction on the assets and/or the ownership of the assets
|
|
|
Term
|
Definition
—Any event that has a financial impact on the business
—Recorded in the accounting equation
|
|
|
Term
|
Definition
| Revenues - Expenses = Net Income |
|
|
Term
| The heading of all financial statements should show |
|
Definition
| “who (company) ,” what (document written) ,” and “when.” |
|
|
Term
| Statement of Retained Earnings |
|
Definition
Company
Statement of retained earnings
month ended dec 31
Retained earnings for december 1, 2001 1000
Add: Net Income 400
Less: Dividends 300
Retained Earning for december 31, 201 1100
|
|
|
Term
|
Definition
List assets, liabilities and equity at a specific date
Assets = Liabilities + Equity
|
|
|
Term
|
Definition
Accounts are assigned numbers to help organization
Usually have two or more digits
First digit indicates type of account
1 Asset
2 Liability
3 Stockholders Equity
4 Revenue
5 Expense
Chart of accounts
Listing of all accounts in order
|
|
|
Term
|
Definition
| A business may sell goods or services or loan money and receive a promissory note. A note receivable is a written promise that the customer or borrower will pay a fixed amount of money by a certain date. Notes receivable reflects the amount of the promissory notes that the business expects to collect in cash at a later date. |
|
|
Term
|
Definition
are amounts owed to third parties. A business generally has fewer liability accounts than asset accounts because a business’s liabilities can be summarized in fewer categories, such as the following: Accounts Payable, Notes Payable, Accrued LIabilities
|
|
|
Term
|
Definition
| A business may purchase goods or services in exchange for a promise of future payment. Such purchases are said to be made on credit or on account. The Accounts payable account reflects how much cash the business must pay to suppliers for goods or services that have already been received. |
|
|
Term
|
Definition
| Notes payable represents amounts the business must pay because it signed promissory notes to borrow money or to purchase goods or services. |
|
|
Term
|
Definition
: An accrued liability is a liability for an expense that has been incurred, but has not yet been paid. Taxes payable, Interest payable, and Wages payable are examples of accrued liability accounts.
|
|
|
Term
|
Definition
| : The Common Stock account represents the investment of assets, usually cash, that the stockholders have invested into a business in exchange for the company’s stock. |
|
|
Term
|
Definition
| The Retained Earnings account tracks the cumulative earnings of the business since it began, less any dividends given to stockholders. |
|
|
Term
|
Definition
| Increases in retained earnings (and, therefore, Stockholders’ Equity) created by selling goods or services to customers are called revenues. This account represents amounts earned by the company, even if the company has not yet been paid for the goods and services provided. A business may have several revenue accounts depending on how many ways it earns its revenue. |
|
|
Term
|
Definition
| Expenses are decreases in retained earnings (and, therefore, Stockholders' Equity) from using resources to deliver goods and services to customers. A business needs a separate account for each type of expense, such as Insurance Expense, Rent Expense, Wages Expense, and Utilities Expense. Businesses often have numerous expense accounts because many different types of costs are associated with providing goods and services to customers. |
|
|
Term
|
Definition
| This account reflects the amount of earnings that have been distributed to the stockholders. Dividends decrease retained earnings (and, therefore, Stockholders' equity). |
|
|
Term
Every transaction impacts at least two accounts
Each account has two sides
|
|
Definition
Account Name
Debit on left side Credit Right
DR CR |
|
|
Term
| Dividends and Expenses decrease |
|
Definition
| Stockholders equity therefore they have opposite rules of debit/credit |
|
|
Term
.... Increase with a debit
|
|
Definition
A(DE) (DE)bit
Assets
Dividends
Expenses |
|
|
Term
| ... Increase with a credit |
|
Definition
LCRR CRedit
Liabilities
Common Stock
Revenue
Retained Earnings |
|
|
Term
|
Definition
| a chronological, or date order, record of the transactions of a business. Recording a in the general journal is referred to as journalizing the transaction. |
|
|
Term
|
Definition
Based on liquidity of the asset
ABC Company
Trial balance
Dec 31 2011
Account Dr Cr
Cash 100
Accts Rec 300
Equipment 200
Accts. Pay 300
Common Stock 200
Retained Earnings 50
Service Rev 100
Salary Expense 50
Totals should equal |
|
|
Term
| Accounting Period Reporting Time frames |
|
Definition
Reporting time frame
- Month, quarter or year
|
|
|
Term
Annual accounting period
|
|
Definition
Calendar year
Fiscal year
○Any consecutive 12-month period a business chooses
|
|
|
Term
Accrual Accounting
Revenue Recognition is |
|
Definition
| Revenue should always be recorded when earned, regardless of when cash is received |
|
|
Term
Accrual Accounting
Matching |
|
Definition
•Expenses should be matched with revenues they helped generate, regardless of when paid
|
|
|
Term
|
Definition
Business has earned revenue before receiving cash from customer…OR…
Business has incurred expense before cash is paid
|
|
|
Term
|
Definition
Business receives cash before providing goods or service to the customer…OR…
Business has paid expense before it is incurred
|
|
|
Term
|
Definition
Recorded at the end of the accounting period
Results in accurate, up-to-date financial statements
Ensures revenue recognition and matching principles are followed
|
|
|
Term
|
Definition
Revenue earned before cash is received
Debit a receivable; credit revenue
|
|
|
Term
|
Definition
Expense is incurred before payment is made
Debit an expense; credit a liability
|
|
|
Term
Adjustments for Deferrals
Unearned Revenue |
|
Definition
Recorded as liability when payment is received
Revenue is recorded when customer receives goods or service
|
|
|
Term
Adjustments for deferrals
Prepaid Expense or deferred |
|
Definition
Recorded as assets when purchased
Expensed is recorded when used |
|
|
Term
Business earns revenue before receiving cash.... Name the account used to balance the accounts receivable
|
|
Definition
|
|
Term
Business has incurred expense (salary expense), but not yet made payment name the account that will balance salary expense
|
|
Definition
|
|
Term
žBusiness receives cash from customer before earning revenue
—Unearned revenue
○Liability account
Name the account that offsets Cash
name the adjustment accounts made
|
|
Definition
Unearned Revenue or (deferred revenue) is credited as cash is debited.
The adjustment is a debit to unearned revenue and credit to service |
|
|
Term
| Deferred expenses represent items that |
|
Definition
| are paid for before they are used. Prepaid rent and Prepaid insurance are examples of deferred expenses, which are also called prepaid expenses. |
|
|
Term
If we have paid cash for prepaid rent then:
Prepaid rent is debited and cash is credited
what is the adjustment at the end of the month? |
|
Definition
We will debit rent expense and credit prepaid rent
but remember to evenly split the rent over the time period. ex; if u pay 600 for 3 months rent than it will be 200 per month |
|
|
Term
When we purchase supplies we pay cash therefore
supplies account is debited and cash is credited
what is the adjustment as the supplies are used?
|
|
Definition
| It is called the supplies expense account which will be debited as we use the products. we will offset this by crediting the supplies account. |
|
|
Term
| Depreciation of long term assets |
|
Definition
Last for more than one year
Land, buildings, equipment and furniture
Used up over time
Except land
Expense cost of long-term over its life
Depreciation
|
|
|
Term
For depreciation of Equipment
Purchased equipment on account for 24k
so we debit equipment and credit accts. pay by 24k
we figure the equipment will be worthless in 4 years so we will divide 24k by 4 for years and then by 12 for 12 months in the year.
the adjustment is:
|
|
Definition
| depreciation expense is debited and accumulated depreciation is credited. its called a contra-asset |
|
|
Term
|
Definition
Linked to another account and will appear with it in the financial statements
Normal balance is opposite of the account to which it is linked
Balance is subtracted from the balance of the linked account to determine net value
|
|
|
Term
| linked to an asset account |
|
Definition
| Accumulated depreciation–Equipment, a contra-asset account, will appear on the balance sheet. |
|
|
Term
| After adjustments are made and posted, adjusted trial balance is prepared |
|
Definition
The financial statements are prepared using the amount from the adjusted trial balance
Income Statement
Statement of Retained Earnings
Balance Sheet
|
|
|
Term
|
Definition
Revenue, expense and dividend accounts are set to zero before starting next accounting period
These accounts are transferred to Retained earnings
○Transferring revenue and expense accounts increases Retained earnings by the amount of net income
○Transferring dividends account decreases Retained earnings
|
|
|
Term
|
Definition
RED
Revenue
Expenses
Dividends
These accounts are closed into retained earnings |
|
|
Term
|
Definition
Assets
Liabilities
Common Stock
Retained Earnings
Not Closed- Balances carry to next period. |
|
|
Term
| How to close the Revenue account |
|
Definition
| Debit each revenue account and credit retained earnings |
|
|
Term
|
Definition
| debit retained earnings and credit each expense account |
|
|
Term
|
Definition
| debit retained earnings and credit dividends |
|
|
Term
| Impact of closing entries on retained earnigns |
|
Definition
Increased by net income
Closing revenues and expenses
Decreased by dividends
Account balance will match ending balance on Statement of Retained Earnings
|
|
|
Term
| Last step: Post Closing Trial balance |
|
Definition
Final step of the accounting cycle
Includes only assets, liabilities and stockholders’ equity accounts
All temporary accounts have been closed
Provides a starting point for next period’s transactions
|
|
|
