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Definition
Internal users (used within business)
Help to make inside choices
Tailor-made for company |
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Definition
External Users
Helps outsiders decide whether to invest
Rule-Based financial statements
Historical |
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Definition
| Used for regulatory purposes (IRS) |
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Term
| Generally Accepted Accounting Principles |
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Definition
Makes financial accounting uniform
Developed by the Financial Accounting Standards Board (FASB)
Publicly traded companies also regulated by Securities and Exchange Commission (SEC)
Global standards set by International Accounting Standards Board (IASB) |
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Term
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Definition
| Activities of the business are recorded separately from the owners, creditors, and other businesses. |
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Term
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Definition
1 owner (limits resources)
Easy and cheap to organize
70% of US businesses |
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Term
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Definition
2 or more owners with pooled resources
10% of US business (Combined with LLC) |
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Term
| Limited Liability Corporation (LLC) |
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Definition
Combines elements of partnerships and corporations
10% of US Business (Combined with Partnership) |
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Term
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Definition
Organized by government statutes as a separate taxable entity from owners
Ownership through stock |
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Definition
| Amounts recorded in records are based on objective evidence |
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Term
| Who has the rights to the assets of a business? |
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Definition
Debts are owned by creditors (liabilities)
What is left over from the assets is the owner's equity |
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Term
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Definition
| Event that changes a company's financial condition or the results of operation |
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Definition
| Revenue from money paid for services |
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Definition
| Revenue from money paid for your product |
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Term
Revenue type:
Rent Revenue |
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Definition
| Revenue from money paid for use of your property |
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Term
Revenue type:
Interest Revenue |
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Definition
| Revenue from money paid to your interest-earning accounts |
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Term
| "Revenue earned on account" |
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Definition
| business will accept payment at a later date (will bill customer) |
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Term
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Definition
Asset
When an account (bill) is paid by the customer, cash increases and account receivable decreases |
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Term
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Definition
Using up cash or other assets in the process of earning revenues.
Example: Wages, Utilities, Supplies |
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Term
| How does paying creditors affect the accounting equation? |
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Definition
Reduces liabilities and assets
AKA reduces money you have and money you owe |
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Term
| How does paying expenses affect the accounting equation? |
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Definition
| Reduces owner's equity and assets |
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Term
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Definition
Opposite of investment
Not to be confused with expenses, because money is not used for the business |
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Term
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Definition
Reports Revenues and Expenses for a period of time (Max. 1 year)
Excess revenues= net income/profit
Excess expenses= net loss
Expenses are listed in order from largest to smallest with misc. at end |
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Term
| Statement of Owner's Equity |
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Definition
Reports changes in Owner's Equity over a period of time
Updates the capital account
Prepared after income statement and before balance sheet |
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Term
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Definition
Reports Assets, Liabilities, and Owner's Equity
Assets and Liability amounts are taken from the last line of the summary of transactions (journal)
Owner's Equity taken from the Statement of Owner's Equity
NOT over a period of time, but a set date. |
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Term
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Definition
Three Sections:
1. Operating Activities
2. Investment Activities
3. Financing Activities
Ending balance should match Balance Sheet amount for cash |
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Term
| Cash Flows from Operating Activities VS Net Income |
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Definition
| Different: Revenues and Expenses are not recorded at the same time as cash is received or paid to creditors |
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Term
| Cash flows from Investment Activities |
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Definition
| Cash transactions from acquisition and sale of relatively permanent assets: Land and Equipment |
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Term
| Cash Flows from Investment Activities |
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Definition
| Cash invested by the owner as well as borrowing and withdrawals |
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Term
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Definition
| Group of accounts for a business |
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Term
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Definition
Group of numbered Ledgers
Two numbered parts: 1st is account group, 2nd is position within group
Accounts are in the order in which they appear on the financial statements: Balance Sheet accounts 1st followed by Income Statement accounts |
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Term
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Definition
Resources owned by business
Physical (land) and intangible (patents)
Includes accounts receivable, prepaid expenses (insurance), land, equipment, supplies |
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Term
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Definition
Debts owed to creditors
Accounts usually contain the word "payable"
Includes future service commitments (unearned revenues) |
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Term
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Definition
Owner's right to assets of a business after payment of liabilities
Represented by the capital accounts
Withdrawals are represented by the drawing account |
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Term
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Definition
| Increase in Owner's Equity from selling goods and services |
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Term
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Definition
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Term
Normal Balance for
Liabilities |
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Definition
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Term
Normal Balance for
Owner's Equity |
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Definition
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Term
Normal Balance for
Revenues |
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Definition
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Term
Normal Balance for
Expenses |
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Definition
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Term
Normal Balance for
Drawing |
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Definition
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Term
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Definition
1. Date in date column
2. Title of debited account in description column followed by amount
3. Title of credited account in description column followed by amount (debits=credits)
4. Description of transaction in description column
5. Account number in Posting reference Column |
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Term
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Definition
| Transferring debits and credits from the journals to the accounts |
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Term
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Definition
Journal Page number is put in the posting reference for account
Account number is put in the posting reference of the journal |
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Term
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Definition
| Will be transferred to (earned)revenue when service is preformed |
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Term
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Definition
Detects recording errors
1. Title and Date
2. List accounts and balances on correct debit or credit column
3. Total Debits and Credits
4. If don't match,you messed up |
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Term
| 3 Common Trial Balance Errors |
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Definition
1. faulty addition
2. if difference between debits and credits is /2, you may have recorded an entry in the same column twice
3. if difference between debits and credits is /9, transposition (209 instead of 290) |
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Term
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Definition
Comparing an item on a business's financial statement to a prior financial statement (old used as base)
Increase or decrease is computed as % |
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Term
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Definition
Expenses are reported in the same period as the revenues with witch they relate
Even if an expense isn't paid within the period, it is recorded |
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Term
| Accrual Basis of Accounting |
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Definition
Revenues and expenses are reported as they are incurred even if they aren't received or paid
GAAP accepts this basis |
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Term
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Definition
Revenues and expenses are reported in the period in which cash is received or paid
Not accepted by GAAP |
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Term
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Definition
| Analysis and updates of accounts at the end of a period before making financial statements |
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Term
| 4 Account types that need adjustment |
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Definition
1. Prepaid Expenses
2. Unearned Revenues
(Deferrals)
3. Accrued Revenues
4. Accrued Expenses
(Accruals) |
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Term
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Definition
Decrease in usefulness of a fixed asset
Includes all fixed assets except land |
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Term
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Definition
Account that exists only to be the opposite of another account
EX: Accumulated depreciation is the contra-account of depreciation expense |
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Term
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Definition
Difference between original cost and accumulated depreciation
Not to be confused with market value |
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Term
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Definition
Revenue and Expenses (called temporary/nominal accounts) are closed to begin a new accounting period
Their balances are put into permanent accounts (capital) |
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| 4 Steps to Closing Temporary Accounts |
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Definition
1. Transfer Revenue to Income summary
2. Transfer Expenses to Income Summary
3. Transfer Income Summary to Capital
4. Transfer Withdrawals to Capital |
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Term
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Definition
Fiscal year that ends at the lowest point of a business's operating cycle
Gives more time for analysis since there is less business |
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