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Accounting 1 Section 1
Ch 1 and 2
98
Accounting
Undergraduate 2
02/26/2012

Additional Accounting Flashcards

 


 

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Term
After Eating Dinner, Let's Read Comics
Definition
Assets, Expenses, Drawings (all debit to increase). Liabilities, Revenues and Capital (all credit to increase)
Term
Basic Accounting Equation
Definition
ASSETS = LIABILITIES + OWNER’S EQUITY
Term
Semi-expanded Accounting Equation
Definition
ASSETS = LIABILITIES + OWNER’S CAPITAL – OWNER’S DRAWINGS + NET INCOME
Term
Expanded Accounting Equation
Definition
ASSETS = LIABILITIES + OWNER’S CAPITAL – OWNER’S DRAWINGS + REVENUES – EXPENSES
Term
List Activities of recording in order
Definition
JOURNAL ENTRIES, THEN POST TO LEDGER
Term
Describe format of Journal Entries
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
Term
What does footing a side mean?
Definition
‘FOOT’ MEANS TOTAL A SIDE (DEBIT OR CREDIT)
Term
What does it mean that a ledger must balance?
Definition
EACH TRANSACTION MUST IMPACT MORE THAN 1 ACCOUNT (2 MIN.) EACH ACTION MUST HAVE OPPOSITE ACTION IN ANOTHER ACCOUNT (NOT IN SAME ACCOUNT)
Term
List FINANCIAL STATEMENTs in ORDER:
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).
Term
List order of data presentation on a TRIAL BALANCE
Definition
: order of presentation: 1. Assets; 2. Liabilities; 3. Owner’s Equity; 4. Revenues; 5. Expenses. See pages of text 22-24 for examples
Term
Explain the purpose of an Income Statement
Definition
summarizes the changes in owner’s equity for a specific period of time.
Term
Describe the format of an Income Statement
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
Term
Explain the purpose of an Owner's Equity Statement
Definition
OWNER’S EQUITY STATEMENT: summarizes the changes in owner’s equity for a specific period of time.
Term
Describe the format of an Owner's Equity Statement - include description of where to find the data included in the statement.
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.
Term
Explain the purpose of an Balance Sheet
Definition
reports the assets, liabilities and owner’s equity at a specific date.
Term
Describe the format of a Balance Sheet
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.
Term
Explain the purpose of a Statement of Cash Flows
Definition
summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.
Term
What 3 Questions does the Statement of Cash Flows answer?
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?

Term
What is Accounting?
Definition
An information system that identifies, records and communicates the economic events of an organization to interested users.
Term
Who are the three major users of accounting?
Definition
Management, Investors and Creditors.
Term
What are the main uses of accounting?
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.
Term
Why are ethics important?
Definition
Effective financial reporting depends on sound ethical behavior. Ethics are the standards of conduct by which actions are judged right or wrong.
Term
What is GAAP and who creates it?
Definition

Generally Accepted Accounting Principles. A common set of standards used by accountants.

 

Created by FASB: Financial Accounting Standards Board

Term
What is the monetary unit assumption?
Definition
Requires that companies include in their accounting records only transaction data that can be expressed in terms of money.
Term
What is the economic entity assumption?
Definition
Requires that the activities of each economic entity be kept separate from the activities of its owner and other economic entities.
Term
State the accounting equation and define its components.
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.
Term
define Owner’s Capital:
Definition
Owner's Investment
Term
define Owner’s Drawings:
Definition
assets the owner withdraws from the business for personal use.
Term
define Revenues
Definition
increases in assets resulting from income-earning activities.
Term
define Expenses:
Definition
the cost of assets consumed in the process of earning revenue.
Term
Analyze the effects of business transactions on the accounting equation:
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.
Term
What are the four financial statements and how are they prepared?
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.
Term
List and explain the 3 steps in the accounting process:
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.
Term
define Proprietorship:
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.
Term
define Partnership:
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.
Term
define Corporation
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
Term
define Assets
Definition
resources a business owns
Term
define Balance sheet
Definition
a financial statement that reports the assets, liabilities, and owner's equity at a specific date.
Term
Bookkeeping
Definition
a part of accouting that involves only the recording of economic events.
Term
define convergence
Definition
the process of reducing the differences between GAAP and IFRS
Term
Corporation
Definition
A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock
Term
Cost Principle
Definition
An accounting principle that state that companies should record assets at their cost not their value
Term
Drawings
Definition
Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s).
Term
Economic Entity Assumption
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.
Term
Ethics
Definition
The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair.
Term
Expanded accounting equation
Definition
Assets = Liabilities + Owner's Captial - Owner's Drawings + Revenues - Expenses.
Term
Expenses
Definition
the cost of assets consumed or services used in the process of earing revenue.
Term
Faithful represenatation
Definition
Numbers and descriptions match what really existed or happened - it is factual
Term
Financial accounting
Definition
the field of accounting that provides economic and financial information for investors, creditors, and other external users.
Term
FASB
Definition
Financial Accounting Standards Board: a private organization that establishes generally accepted accounting principles (GAAP)
Term
GAAP
Definition
Generally Accepted Accounting Principles: common standards that indicate how to report economic events.
Term
Income Statement
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.
Term
IASB
Definition
International Accounting Standards Board: an accounting standard-setting body that issues standards adopted by many counties outside of the United States
Term
Investments by owner
Definition
the assets an owner puts into the business
Term
Liabilities
Definition
creditor claims on total assets
Term
Managerial accounting
Definition
the field of accounting that provides internal reports to help users make decisions about their companies
Term
Monetary Unit Assumption
Definition
an assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money
Term
Net income
Definition
the amount by which revenues exceed expenses
Term
Net loss
Definition
The amount by which expenses exceed revenues
Term
Owner's equity
Definition
the ownership claim on total assets
Term
Owner's Equity Statement
Definition
A financial statement that summarizes the changes in owner's equity for a specific period of time
Term
Partnership
Definition
A business owned by two or more persons associated as partners.
Term
Proprietorship
Definition
a business owned by one person
Term
Relevance
Definition
financial information that is capable of making a difference in a decision
Term
Revenues
Definition
the gross increase in owner's equity resulting from business activies entered into for the purpose of earning income.
Term
SOX
Definition
Sarbanes-Oxley Act of 2002: law passed by Congress in 2002 intended to reduce unethical corporate behavior
Term
SEC
Definition
Securities and Exchange Commision: a governmental agency that oversees US financial markets and accounting standard-setting bodies.
Term
Statement of Cash Flows
Definition
A financial statement that summarizes information about cash inflows (receipts) and cash outflows (payments) for a specific period of time
Term
Transactions
Definition
the economic events of a business that are recorded by accountants.
Term
Explain what an account is and how it helps in the recording process
Definition
An account is a record of increases and decreases in specific asset, liability, and owner's equity items.
Term
Define debits and credits and explain their use in recording business transactions
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.
Term
Identify the basic steps in the recording process
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.
Term
Explain what a journal is and how it helps in the recording process.
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.
Term
Explain what a ledger is and how it helps in the recording process
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.
Term
Explain what posting is and how it helps in the recording process
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.
Term
explain the purposes of a trial balance and
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.
Term
define account
Definition
a record of increases and decreases in specific asset, liability, or owner's equity items.
Term
Chart of accounts
Definition
a list of accounts and the account numbers that identify their location in the ledger.
Term
Compound entry
Definition
a journal entry that involves three or more accounts
Term
credit
Definition
the right side of an account
Term
debit
Definition
the left side of an account
Term
double-entry system
Definition
a system that records in appropriate accounts the dual effect of each transaction
Term
general journal
Definition
the most basic form of journal
Term
general ledger
Definition
a ledger that contains all asset, liability and owner's equity accounts
Term
journal
Definition
an accounting record in which transaction are initially recorded in chronological order
Term
journalizing
Definition
the entering of transaction data in the journal
Term
ledger
Definition
the entire group of accounts maintained by a company
Term
normal balance
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

Term
posting
Definition
the procedure of transferring journal entries to the ledger accounts
Term
simple entry
Definition
a journal entry that involves only two accounts
Term
T account
Definition
the basic form of an account
Term
three-column form of account
Definition
a form with columns for debit, credit, and balance amounts in an account
Term
Trial balance
Definition
a list of accounts and their balances at a given time.
Term
Income Statement formula
Definition
Revenues - Expenses = Net Income
Term
Owner's Equity Statement formula
Definition
Owner's Equity = Starting Owner's Capital Add: Investments + Net Income Less: Drawings
Term
Balance Sheet formula
Definition
Balance Sheet is Assets = Liabilities + Owner's Equity.(two totals that match)
Term
Statement of Cash Flows formula
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
Term
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Definition
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