Term
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Definition
| Identify, record, and communicaterelevant, reliable, and comparable information |
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Term
| What ar the two types of acounting? |
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Definition
Financial Accounting- Provides accounting info to external users (shareholders, lenders, suppliers, employees, government
Managerial Accounting- Provides accounting info to internal users- managers, directors, etc (small group)-people that make day to day decisions about the business |
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Term
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Definition
| Prepared from compiling all the transactions and events of the company. It is the final goal in financial accounting. |
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Term
| What does the financial statement include? |
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Definition
| Income Statement, Statement of Owners Equity, Balance Sheet, and (statement of cash flows) |
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Term
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Definition
Revenues-expenses=NET INCOME
Reports a period of time
ex. January 1-January 31 |
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Term
| Statement of Owers Equity |
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Definition
Beginning Equity+Investmentws+Net Income-Net Loss-Withdrawals=Ending Equity
Reports a period of time |
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Term
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Definition
Assets=liabilities+equity (WIRE-Withdrawals, Investments (owners capital), Revenues, expenses)
Reports 1 day in time (end of period)
ex. January 31 |
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Term
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Definition
Resources owned/controlled that provides a current and FUTURE benefit
ex. machinery, insurance, etc. |
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Term
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Definition
Obligations owed to third parties
ex. Borrowed money |
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Term
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Definition
Owners claim on the assets
amt financed through the owners |
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Term
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Definition
Account that maintains equity balance
-records investments made by owner |
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Term
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Definition
assets taken from business by owner for personal use
ex. Owner writes check from business to pay for car |
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Term
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Definition
| amounts earned from providing products/services to customers |
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Term
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Definition
| Cost of resources of services used to earn revenues |
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Term
| What does GAAP stand for? |
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Definition
Generally Accepted Accounting Principles
foundation of accounting |
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Term
| Reveue Recognition Principle |
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Definition
Tells when you can record a revenue
-Earnings process must be complete to record a revenue |
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Term
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Definition
Tells when you can record an expense
-same time period that revenue was used to generate the expense |
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Term
| Full Disclosure Principle |
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Definition
| No holding back info that could help client make decision (ex. if business is going down, they must make that information aware to the client) |
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Term
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Definition
Everything can be identified in monetary units
-conversions (euros to dollars) |
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Term
| Business Entity Assumption |
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Definition
| every type of company is a business entity- so every business must be recorded seperately from eachother |
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Term
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Definition
| we can break accounting info into time periods (month, quarter, year) |
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Term
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Definition
Assume that when looking at info that the business is going to continue indefinitely
-make better decisions (ex. in stock, etc.) |
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Term
| What is considered a business entity? |
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Definition
| All for profit organizations that are in business for a profit are considered business entities. |
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Term
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Definition
-Can only be 1 owner
-is NOT a separate legal entity
-Owner has UNLIMITED liability
-Limited life
-Owner pays taxes on net income Personally |
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Term
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Definition
-Has to hve at least 2 owners
-Is NOT a separate legal entity
-owners have unimited liability
-limited life
-owners pay taxes individually on the net income earned |
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Term
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Definition
-Can have 1 or more than 1 owner
-IS a separate legal entity
-owners have limited liability
-Unilited life (bc names aren't tied to businesses
-Corporation pays it's own taxes on net income
-shareholders pay taxes on dividents recieved from the corporation |
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Term
| What are the first four steps of the Accounting Cycle? |
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Definition
1. Analyze transactions/ events
2. Journalize (record)
3. Post
4. Prepare unadjusted trial balance |
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Term
| Analyze Transactions/ Events |
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Definition
-Analyze or look over source document
-Determine what accounts are affected
-Determine if account affected is increasing or decreasing to specific assets, liabilities, equity revenues, and expenses
-Debits and credits record inc or dec to accounts |
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Term
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Definition
Gives us the rules for preparing transactions
-at least 2 accounts must always be affected
-at least 1 debit and 1 credit must be recorded
-debits must equal credits |
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Term
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Definition
DEBITS are increased with ASSETS, WITHDRAWALS, AND EXPENSES
CREDITS are increased with REVENUES, INVESTMENTS (CAPITAL), AND LIABILITIES |
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Term
| What are the first 7 steps of the Accounting Cycle? |
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Definition
1. Analyze Transaction
2. Journalize
3. Post
4. Prepare Unadjusted Trial Balance
5. Adjust
6. Prepare Adjusted Trial Balance
7. Prepare Financial Statements |
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Term
T/F
A financial statement has to be done at least on an annual basis? |
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Definition
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Term
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Definition
The 12 consecutive months that a company uses for their annual reporting period
-fiscal years do not haveto end on 12/31
-Company can choose a FY end that corresponds to their natural business year (the point when operations are slowest) |
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Term
Ex. Fiscal Yr. Ends 6/30 (July 1st- June 30)
What is the Fiscal Year of 2011? |
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Definition
| July 1, 2010- June 30, 2011 |
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Term
| If the Fiscal Yr ends on September 30, 2011, when would the 1st day of the fiscal year be? |
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Definition
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Term
| What two GAAP principles does the Cash Basis of Accounting violate? |
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Definition
Revenue Recognition Principle and the Matching Principle
This decreases COMPARABILITY |
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Term
| Accrual Basis of Accounting |
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Definition
-Revenues are recorded when earned (Revenue Recognition Principle)
-Expenses are recorded when incurred (Matching Principle) |
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Term
| What does an adjusting journal entry tell you? |
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Definition
| If you're talking about a prepaid expense, it tells you how much of that prepaid expense has now been used up. |
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Term
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Definition
Created when cash is recieved in advance of providing products/services
-Original transaction that creates the unearned revenue
-Inc Unearned Revenue (liab)- CR
-Inc Cash (asset)- DR |
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Term
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Definition
Created when a resource has been used or a cost has been incurred but has not been paid for
Inc expense- Debit
Inc liability- Credit
*no original journal entry that you have to adjust
ex. salaries or wages payable, interest payable, income taxes payable/expense, etc. |
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Term
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Definition
Created when a product or service has been provided to a third party that has not yet been recieved in cash
-adjusting journal entry to record an accured revenue
Inc revenue- Credit
Inc asset- (receivable)- Debit |
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Term
| What account will NEVER be affected by an adjusting journal entry? |
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Definition
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Term
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Definition
Records cost of long term, tangible, assets to the periods the asset is used in.
To calculate depreciation recorded in each period used; need to know
1. cost of asset
2. estimated useful life
3. salvage value (expected value of that asset at the end of it's useful life)
One method to record depreciation expense is the Straight Line Method- allocates an equal portion to every period |
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Term
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Definition
| a contra asset account that records the total depreciation that has been recorded over the life of the asset. |
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Term
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Definition
an account linked w/ another account that has an opposite normal balance as the account it's linked with
Inc expense (depreciation expense)- DR
Dec asset- by recording increase in contra asset account (accumulated depreciation)- CR |
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