Term
| After Eating Dinner, Let's Read Comics |
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Definition
| Assets, Expenses, Drawings (all debit to increase). Liabilities, Revenues and Capital (all credit to increase) |
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Term
| Basic Accounting Equation |
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Definition
| ASSETS = LIABILITIES + OWNER’S EQUITY |
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Term
| Semi-expanded Accounting Equation |
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Definition
| ASSETS = LIABILITIES + OWNER’S CAPITAL – OWNER’S DRAWINGS + NET INCOME |
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Term
| Expanded Accounting Equation |
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Definition
| ASSETS = LIABILITIES + OWNER’S CAPITAL – OWNER’S DRAWINGS + REVENUES – EXPENSES |
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Term
| List Activities of recording in order |
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Definition
| JOURNAL ENTRIES, THEN POST TO LEDGER |
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Term
| Describe format of Journal Entries |
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Definition
| Title : Journal Entries (centered) J(page number) right justified. Column Titles: Date, Account Titles Ref., Debit, Credit. Then chronologically list: JOURNAL ENTRIES START WITH DEBIT FULL LEFT JUSTIFIED, THEN CREDIT FOR SAME ENTRY INDENT RIGHT 5 SPACES |
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Term
| What does footing a side mean? |
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Definition
| ‘FOOT’ MEANS TOTAL A SIDE (DEBIT OR CREDIT) |
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Term
| What does it mean that a ledger must balance? |
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Definition
| EACH TRANSACTION MUST IMPACT MORE THAN 1 ACCOUNT (2 MIN.) EACH ACTION MUST HAVE OPPOSITE ACTION IN ANOTHER ACCOUNT (NOT IN SAME ACCOUNT) |
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Term
| List FINANCIAL STATEMENTs in ORDER: |
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Definition
| 1. Income Statement (use Net Income in Owner’s Equity Statement); 2. Owner’s Equity Statement (use Owner’s capital on Balance Sheet); 3. Balance Sheet (use Cash in Statement of Cash Flows); 4. Statement of Cash Flows (Cash at the end of the period should match Cash on Balance Sheet). |
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Term
| List order of data presentation on a TRIAL BALANCE |
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Definition
| : order of presentation: 1. Assets; 2. Liabilities; 3. Owner’s Equity; 4. Revenues; 5. Expenses. See pages of text 22-24 for examples |
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Term
| Explain the purpose of an Income Statement |
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Definition
| summarizes the changes in owner’s equity for a specific period of time. |
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Term
| Describe the format of an Income Statement |
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Definition
| Lists Revenues first, then Expenses and then shows the Net Income ( or Net Loss). The Titles Revenues, Expenses and Net Income are all left justified. The subcategories for each title is indented 5 spaces and the total for each subcategory is noted on the right side of the page decimal aligned in two columns one for debits and one for credits (don’t know title the debit and credit columns) Revenues amounts go under credits and Expenses go under debits. Data for this report is found in the Owner’s Equity portion of a tabular report. DON’T INCLUDE INVESTMENTS OR DRAWINGS IN THIS REPORT |
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Term
| Explain the purpose of an Owner's Equity Statement |
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Definition
| OWNER’S EQUITY STATEMENT: summarizes the changes in owner’s equity for a specific period of time. |
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Term
| Describe the format of an Owner's Equity Statement - include description of where to find the data included in the statement. |
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Definition
| Data for this report is found in the Owner’s Equity portion of a tabular report. The period of this report should match the period for the Income Statement. First line should show the beginning owner’s equity amount. This amount should reflect the ending balance for the day before the period covered by the report or the beginning balance for the first day of the period covered by the report. This report contains three subtitles: Add:; Less: and Owner’s Capital (include date of last day of period covered here). Under these subtitles list Add: Investments and Net Income (from Income Statement); Less: Drawings; Owner’s Capital (total of Add and Less). All dollar values from Add should be indicated in the Debit column and all dollar values for Less should be indicated in the Credit column. The total (Owner’s Capital ______) should be doubled underlined and should appear in the right or credit column. |
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Term
| Explain the purpose of an Balance Sheet |
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Definition
| reports the assets, liabilities and owner’s equity at a specific date. |
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Term
| Describe the format of a Balance Sheet |
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Definition
| This is the only report that is for a specific day only – this can not be for a period of time!! It reports the Assets, Liabilities, and Owner’s Equity on a specific date. This report list Assets first (Assets should be bold and centered on the page), the Liabilities and Owner’s Equity (also bold and centered on the page). All subcategories of Assets are left aligned and listed in order of liquidity. The Liabilities and Owner’s Equity is further broken up into two separate categories with the subtitles Liabilities; Owner’s Equity left justified and their subcategories indented 5 spaces. All dollar amounts are right justified, Owner’s capital (under Owner’s Equity) should match the total of the Owner’s Equity Statement. The total for the two sections Asssets and Liabilities and Owner’s Equity are double underlined. The two totals should be equal. |
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Term
| Explain the purpose of a Statement of Cash Flows |
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Definition
| summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. |
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Term
| What 3 Questions does the Statement of Cash Flows answer? |
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Definition
Purpose of the Statement is to report: The cash effects of a company’s operations during a period; its investing transactions (not owner’s investment!!); its financing transactions; the net increase or decrease in cash during the period; the cash amount at the end of the period.
Answers these questions: 1. Where did cash come from during the period? 2. What was cash used for during the period? 3. What was the change in the cash balance during the period? |
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Term
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Definition
| An information system that identifies, records and communicates the economic events of an organization to interested users. |
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Term
| Who are the three major users of accounting? |
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Definition
| Management, Investors and Creditors. |
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Term
| What are the main uses of accounting? |
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Definition
| Management uses it to plan, organize and run the business. Investors use it to decide whether to buy, hold or sell their financial interests. Creditors evaluate the risks of granting credit or lending money to the business. |
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Term
| Why are ethics important? |
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Definition
| Effective financial reporting depends on sound ethical behavior. Ethics are the standards of conduct by which actions are judged right or wrong. |
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Term
| What is GAAP and who creates it? |
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Definition
Generally Accepted Accounting Principles. A common set of standards used by accountants.
Created by FASB: Financial Accounting Standards Board |
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Term
| What is the monetary unit assumption? |
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Definition
| Requires that companies include in their accounting records only transaction data that can be expressed in terms of money. |
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Term
| What is the economic entity assumption? |
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Definition
| Requires that the activities of each economic entity be kept separate from the activities of its owner and other economic entities. |
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Term
| State the accounting equation and define its components. |
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Definition
| Assets = Liabilities + Owner’s Equity. Assets are resources a business owns. Liabilities are creditorship claims on total assets. Owner’s Equity in ownerships claim on total assets. |
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Term
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Definition
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Term
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Definition
| assets the owner withdraws from the business for personal use. |
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Term
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Definition
| increases in assets resulting from income-earning activities. |
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Term
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Definition
| the cost of assets consumed in the process of earning revenue. |
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Term
| Analyze the effects of business transactions on the accounting equation: |
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Definition
| Each business transaction must have a dual effect on the accounting equation. Example: Increase of an asset requires either a. a decrease in another asset, b. an increase in a liability or c. an increase in owner’s equity. |
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Term
| What are the four financial statements and how are they prepared? |
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Definition
| Income statement, Owner’s Equity Statement, Balance Sheet and Statement of Cash Flow. Income Statement presents the revenues, expenses and resulting net income or net loss for a specific period of time. Owner’s Equity Statement summarizes the changes in owner’s equity for a specific period of time. Balance Sheet reports the assets, liabilities and owner’s equity at a specific date. Statement of Cash Flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. |
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Term
| List and explain the 3 steps in the accounting process: |
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Definition
| 1. Identify, 2. Records, 3. Communicates. 1. Identify: a company identifies the economic events that are relevant to its business. 2. Records: once a company identifies the economic events that are relevant, then they record those events in order to provide a history of its financial activities. Recording consists of systematic, chronological diary of events measured in dollars and cents. 3. Communicate: Finally, once a company has identified relevant economic events and recorded those events in a systematic, chronological diary this information is provided to users by means of accounting reports. The most common reports are called financial statements. Accountants also analyze and interpret reported information for users. |
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Term
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Definition
| business owned by one person. Usually only requires a small amount of capital to start. Owner receives all profits, suffers any losses and is personally liable for all debts of the business. |
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Term
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Definition
| business owned by two or more people. Like a proprietorship except that usually involves a partnership agreement (written or oral) which sets forth such terms as initial investment, duties of each partner, division of net income (or loss), and settlement to be made upon death or withdrawal of a partner. Usually law firms, doctors office, cpa offices. |
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Term
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Definition
| organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock. Owners enjoy limited liability, may transfer all or part of their ownership to other investors at any time and enjoys an unlimited life |
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Term
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Definition
| resources a business owns |
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Term
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Definition
| a financial statement that reports the assets, liabilities, and owner's equity at a specific date. |
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Term
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Definition
| a part of accouting that involves only the recording of economic events. |
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Term
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Definition
| the process of reducing the differences between GAAP and IFRS |
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Term
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Definition
| A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock |
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Term
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Definition
| An accounting principle that state that companies should record assets at their cost not their value |
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Term
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Definition
| Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s). |
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Term
| Economic Entity Assumption |
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Definition
| An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. |
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Term
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Definition
| The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair. |
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Term
| Expanded accounting equation |
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Definition
| Assets = Liabilities + Owner's Captial - Owner's Drawings + Revenues - Expenses. |
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Term
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Definition
| the cost of assets consumed or services used in the process of earing revenue. |
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Term
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Definition
| Numbers and descriptions match what really existed or happened - it is factual |
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Term
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Definition
| the field of accounting that provides economic and financial information for investors, creditors, and other external users. |
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Term
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Definition
| Financial Accounting Standards Board: a private organization that establishes generally accepted accounting principles (GAAP) |
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Term
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Definition
| Generally Accepted Accounting Principles: common standards that indicate how to report economic events. |
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Term
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Definition
| financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. |
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Term
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Definition
| International Accounting Standards Board: an accounting standard-setting body that issues standards adopted by many counties outside of the United States |
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Term
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Definition
| the assets an owner puts into the business |
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Term
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Definition
| creditor claims on total assets |
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Term
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Definition
| the field of accounting that provides internal reports to help users make decisions about their companies |
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Term
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Definition
| an assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money |
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Term
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Definition
| the amount by which revenues exceed expenses |
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Term
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Definition
| The amount by which expenses exceed revenues |
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Term
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Definition
| the ownership claim on total assets |
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Term
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Definition
| A financial statement that summarizes the changes in owner's equity for a specific period of time |
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Term
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Definition
| A business owned by two or more persons associated as partners. |
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Term
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Definition
| a business owned by one person |
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Term
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Definition
| financial information that is capable of making a difference in a decision |
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Term
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Definition
| the gross increase in owner's equity resulting from business activies entered into for the purpose of earning income. |
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Term
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Definition
| Sarbanes-Oxley Act of 2002: law passed by Congress in 2002 intended to reduce unethical corporate behavior |
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Term
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Definition
| Securities and Exchange Commision: a governmental agency that oversees US financial markets and accounting standard-setting bodies. |
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Term
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Definition
| A financial statement that summarizes information about cash inflows (receipts) and cash outflows (payments) for a specific period of time |
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Term
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Definition
| the economic events of a business that are recorded by accountants. |
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Term
| Explain what an account is and how it helps in the recording process |
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Definition
| An account is a record of increases and decreases in specific asset, liability, and owner's equity items. |
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Term
| Define debits and credits and explain their use in recording business transactions |
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Definition
| The terms debit and credit are synonymous with left and right. Assets, drawings, and expenses are increased by debits and decreased by credits. Liabilities, owner's capital, and revenues are increased by credits and decreased by debits. |
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Term
| Identify the basic steps in the recording process |
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Definition
| 1. Analyze each transaction for its effects on the accounts, 2. enter the transaction information in a journal. 3. transfer the journal information to the appropriate accounts in the ledger. |
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Term
| Explain what a journal is and how it helps in the recording process. |
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Definition
| The inital accounting record of a transaction is entered in a journal before the data are entered in the accounts. A journal 1. discloses in one place the complete effects of a transaction. 2. provides a chronological record of transactions and 3. prevents or locates errors because the debit and credit amounts for each entry can be easily compared. |
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Term
| Explain what a ledger is and how it helps in the recording process |
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Definition
| the ledger is the entire group of accounts maintained by a company. The ledger keeps in one place all the information about changes and specific account balances. |
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Term
| Explain what posting is and how it helps in the recording process |
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Definition
| Posting is the transfer of journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts. |
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Term
| explain the purposes of a trial balance and |
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Definition
| a trail balance is a list of accounts and their balances at a given time. Its primary purpose is to prove the equality of debits and credit after posting. A trail balance also uncovers erros in journalizing and posting and is useful in preparing financial statments. |
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Term
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Definition
| a record of increases and decreases in specific asset, liability, or owner's equity items. |
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Term
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Definition
| a list of accounts and the account numbers that identify their location in the ledger. |
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Term
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Definition
| a journal entry that involves three or more accounts |
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Term
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Definition
| the right side of an account |
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Term
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Definition
| the left side of an account |
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Term
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Definition
| a system that records in appropriate accounts the dual effect of each transaction |
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Term
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Definition
| the most basic form of journal |
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Term
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Definition
| a ledger that contains all asset, liability and owner's equity accounts |
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Term
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Definition
| an accounting record in which transaction are initially recorded in chronological order |
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Term
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Definition
| the entering of transaction data in the journal |
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Term
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Definition
| the entire group of accounts maintained by a company |
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Term
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Definition
an account balance on the side where an increase in the account is recorded.
Assets, Expenses and Drawings Normal Balance is a Debit
Liabilities, Revenues ande Capital Normal Balance is a Credit |
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Term
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Definition
| the procedure of transferring journal entries to the ledger accounts |
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Term
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Definition
| a journal entry that involves only two accounts |
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Term
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Definition
| the basic form of an account |
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Term
| three-column form of account |
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Definition
| a form with columns for debit, credit, and balance amounts in an account |
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Term
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Definition
| a list of accounts and their balances at a given time. |
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Term
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Definition
| Revenues - Expenses = Net Income |
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Term
| Owner's Equity Statement formula |
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Definition
| Owner's Equity = Starting Owner's Capital Add: Investments + Net Income Less: Drawings |
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Term
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Definition
| Balance Sheet is Assets = Liabilities + Owner's Equity.(two totals that match) |
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Term
| Statement of Cash Flows formula |
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Definition
| Statement of Cash Flows = Cash flows from operating activities (revenues) - Cash flows from investing activities (equipment purchase) + Cash flows from financing activities (owner investments - owner drawings) = Net Cash increase + Cash at begning of period + cash at the begiing of the = cash at the end of the period |
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Term
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Definition
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