• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

image

PLAY BUTTON

image

PLAY BUTTON

image

Progress

1/151

Click to flip

Card Range To Study

through

151 Cards in this Set

  • Front
  • Back
General Ledger or the Final Book of Entry includes 3 things, what are they?
1. Balance Sheets
2. Earnings Statements
3. Ownership/Equity
Journals or Original Books of Entry include 3 things, what are they?
1. Daily Transactions
2. Month-end totals
3. Totals transferred
Subsidiary Ledgers or Books of Analysis contain detailed information. Name 5 subsidiary ledgers.
1. AR 2. AP 3. Payroll 4. Jobs in Progress 5. Progress Billings
What are the 4 major divisions of the General Ledger (Final Book of Entry)?
1. Assets (DR) - what we own
2. Liabilities (CR) - what we owe
3. Accruals (CR) - depreciation
4. Capital
What is a Balance Sheet?
A statement of Asset, Liability, Accrual, and Capital accounts taken from the General Ledger.
What are Journals used for?
Making daily entries
Cash and sales (income) are recorded in what journal?
Sales Journal
Bank deposits and the sources of funds received are recorded in what journal?
Cash Receipts Journal
Funds disbursed and for what the money was spent is recorded in what journal?
(Same as a check register)
Cash Disbursements Journal
Can a Payroll Journal be used for cash and accrual accounting?
Yes
Withholdings and payroll accrued or disbursed is recorded in what journal?
Payroll Journal
Corrections, adjustments, and closing entries NOT IN OTHER JOURNALS are recorded in this journal
General Journal
What 2 journals can depreciation and other recurring entries be entered into?
General Journal and Standard Entries Journal
Record of recurring entries WHEN NOT RECORDED in the General Journal are recorded here
Standard Entries Journal
Subsidiary ledgers are not kept for these 4 liability accounts
1. Sales Tax Payable 2. FICA Payable 3. Federal Withholding Payable 4. State Withholding Payable
Which 2 subsidiary ledgers track the status of different jobs in progress?
Jobs in Progress and Progress Billings
Which subsidiary ledger details withholdings and earnings for employees?
Payroll
True or False? Current Liabilities are those items payable within one year.
TRUE
True or False? A Long-Term Liability is a balance due that extends beyond one year.
TRUE
Liabilities are monies due and are divided into 2 different sections, what are they?
Current and Long-Term
What kind of assets maintain steady activity and are expected to turn into cash annually?
Current Assets
These assets are called fixed assets or PP&E, what are they?
Property, Plant and Equipment
When accruals are recorded with fixed assets, they become what kind of accounts?
Contra-Asset Accounts
True or False? No credit (CR) entries are made directly to fixed assets UNLESS the asset is physically removed from the business.
TRUE
What 3 things are capital accounts used to record?
1. business investments 2. prior year earnings and drawings 3. year-to-date net earnings.
What is a sole proprietorship?
A business wholly owned and controlled by one person.
What are some advantages to a proprietorship?
It is easy and inexpensive to form.
What is the primary disadvantage of a proprietorship?
The owner is 100% personally liable for all business debts.
What is a partnership?
A company owned and controlled by two or more general partners acting as co-owners.
Which partner bears the legal liability for the partnership's debts?
They all do. Each partner is liable for all business debts.
What is a corporation?
It is a seperate legal entity and exists apart from its owners or stockholders.
How is a corporation formed in most states?
Articles of Incorporation must be filed with the state in which the business is formed.
What are the primary advantages of a corporation?
Shareholders do not have, in most cases, personal liability for business debts and the corporation is unaffected in its continuity by death or transfer of shares by any of its owners.
What are the disadvantages of a corporation?
It requires more extensive record-keeping and it is more costly to form.
What type of business structure would use the owner's equity account?
A sole proprietorship.
Who pays the tax on the net income of a partnership?
The partners do; in their personal income tax returns based on their individual shares of profit agreed to by all partners.
Which business structure uses the retained earnings account?
The Corporation.
What is an LLC?
A limited liability company.
How do we do the accounting for an LLC and a Limited Partnership?
Just like a general or regular partnership.
Name the 3 books of accounting.
General ledger, journals, subsidiary ledgers.
What are the 4 major categories of accounts in the general ledger?
Assets, liabilities, accruals, and capital.
What is an asset?
Something you own.
What is a liability?
Something you owe.
How many general ledgers will a company have?
One.
Why is the general ledger also called the final book of entry?
Because everything flows into it.
Why are journals also referred to as the original book of entry?
Because that's where all transactions originally enter the accounting system.
Which journal contains a list of checks written?
The cash disbursements journal.
What is the purpose of the subsidiary ledger (books of analysis)?
To analyze selected accounts in the general ledger.
Which journals would the AR clerk work with?
The sales journal and the cash receipts journal.
Are assets debits or credits?
Debits (DR)
Why are assets debits (DR)?
Because they show what we received.
Are liabilities debits or credits?
Credits (CR)
Why are liabilities credits (CR)?
Because they show where the assets came from.
Why does the bank credit our account when we are depositing money into our checking account?
Because our bank account is their liability.
What are the characteristics of a current asset?
They are cash now or can turn in to cash within 12 months.
How does the petty cash account differ from cash on hand?
Petty cash is not intended for deposit, cash on hand will be deposited in the bank.
Define the inventory account.
Inventory is the cost of items on hand for resale to the public.
Which types of business would have a bank reserve account?
Businesses that sell contracts to financial institutions (high priced items).
Name the 4 characteristics of fixed assets.
T. Tangible
I. Is not inventory
M. Material in value $300 or greater
E. Expected life greater than one year
What is the difference between furniture and fixtures and leasehold improvements?
Leasehold improvements are attached to the structure, furniture and fixtures are not.
What types of businesses would use flooring?
Businesses that sell large items with serial numbers (cars, motos, appliances).
What constitutes a current liability?
Any liability that is to be paid off within the year.
How is working capital calculated?
Current assets minus Current liabilities equals working capital.
How do you calculate the current ratio?
Current assets divided by Current liabilities equals the Current ratio.
What is a good rule of thumb to judge the strength of a company's working capital and the financial stability of a company?
2 to 1 ratio of current assets to current liabilities is considered a sign of financial stability in a company.
What is depreciation?
It is a systematic mark down of the value of a fixed asset.
Name 3 methods for calculating depreciation.
Straight-line, double declining balance, units of output.
What method of depreciation is always acceptable?
The straight-line method.
Who uses the double declining balance the most?
The tax preparer.
In what types of industries will the units of output method be used the most?
Heavy equipment industries such as mining and timber.
What is a bad debt allowance account used for?
To represent an estimate of uncollectable AR.
What is a contra-asset account?
A credit (CR) balance asset account that marks down the value of an asset.
What 3 practices will aide a small business owner in collections of accounts?
B. Blame it on the accountant
M. Mail statements monthly
P. Past due amounts
What are the 2 methods of calculating the allowance for bad debts?
Historical method and Over 90 days past due.
What accounts are in the capital section of a sole proprietor's balance sheet?
Equity, drawing, and earnings.
Name the primary sections of the balance sheet.
Assets, Liabilities, Accrual, Capital
Into what 3 sections are the assets divided?
Current assets, fixed assets, and other assets.
In the general ledger, are debits shown on the left or right side of the T-Account?
The left side, credits are shown on the right side.
When is the balance sheet considered in balance?
When the total assets equals the total of liabilities, accruals, and capital.
Name the accrual account that marks down the furniture fixed asset account.
Accumulated Depreciation - Furniture.
What type of transaction is recorded into the Purchase Journal?
Credit purchases, purchases on credit.
What type of transaction is recorded into the cash disbursements journal?
Checks, payments.
Once you have recorded the transactions in a journal, what are the next 3 steps?
Total the columns, Balance the journal, Post the totals to the general ledger.
What 3 job characteristics should you evaluate when determining whether a worker should be categorized as an employee or a contractor?
Exclusivity, Tools, Control
Which publication should you refer to when calculating federal withholding tax?
Circular E, Pub 15.
What percentage is used when calculating Social Security Tax?
6.2 percent
Where can you learn more about your local or state payroll taxes?
Call your local or state tax commission.
Which federal taxes are matched dollar for dollar by the employer?
Social Security and Medicare Tax.
When should federal withholding, social security, and medicare taxes be paid by most employers?
By the 15th of the following month.
What types of entries should be entered into the general journal?
Adjustments and corrections.
What types of entries should be recorded in the standard entries journal?
Entries that occur every month such as depreciation and matching social security and medicare entries.
What is an income statement or profit and loss statement?
It is a breakdown of the earnings account and shows net income or loss for a business.
Into what 3 groups of accounts does the earnings account explode?
It explodes into the sales, cost of sales, and the expense accounts.
How many earnings accounts are listed on the balance sheet?
Only one. Net profit from the income statement is shown as a MEMO to earnings on the Balance Sheet.
What is the formula to determine gross profit?
Sales minus the Cost of Sales equals Gross Profit.
What is the formula to calculate net profit?
Gross Profit minus Expenses equals Net Profit
What 2 accounts do we utilize exclusively for job costing?
Jobs in progress, Progress billings
In which section of the general ledger does jobs in progress belong?
Current assets.
Will all construction companies use job costing?
No. Only construction companies that have jobs exceeding 30 days will likely need the benefits of job costing.
How is percentage of completion calculated?
Direct Costs incurred to date divided by Total Expected Direct Costs.
How is theoretical earnings calculated?
Percentage of completion times expected profit.
How is the advance billing calculated?
Costs incurred to date plus theoretical earnings, or bid plus change orders times the percentage of completion.
When do you include profit from a construction project in Earnings?
You only show the profit after the project is complete.
How is profit reported on incomplete jobs?
It is reported in a MEMO at the base of the financial statement.
Why would a group organize as a non-profit corporation, instead of a for-profit corporation?
Their goal is for a humanitarian purpose rather than for profit.
Are all non-profit corporations also tax exempt?
No. To determine taxability the organization should contact a professional tax consultant.
What committee oversees the non-profit corporation?
A board of trustees.
Four fatal fears.
1. fear of being wrong 2. fear of failure 3. fear of rejection 4. fear of emotional discomfort
How to overcome fears.
Consider, what is the worst thing that could happen? Break down the chore into bite-sized pieces. God is here to back you up.
Build the business in your mind.
How many hours to devote? How much do you want to earn? Do you want to specialize? What size of business? Your travel ability? Will you visit daily, weekly, monthly?
First things first.
Choose a business name, -personal name - last name + Accounting Svc. - Create a name. Get a business license.
Exhibit Credibility.
Professional appearance, demonstration book, bookkeeping made easy, client organizer, business cards & letterhead.
Prospecting Tools.
1. friends, neighbors, relatives 2. business associates 3. community businesses 4. press release 5. specialize in an industry 6. networking 7. plant the seed 8. signage 9. work the trade shows 10. web site mktg. 11. public speaking 12. create a newsletter.
Presenting to a prospective client.
1. build rapport by listening 2. describe the benefits - lower taxes - peace of mind - higher profitability 3. negotiate a fee.
Calculating the fee & closing the sale.
billing calculation form, calculating additional charges, set up fee, closing the sale.
10 tips to success
work on your business weekly, build the business, cultivate professional relationships, under promise and over deliver, delight your clients, be on time, check back w/ clients, provide an engagement letter, discuss payment terms, business checking account
What 4 inventory accounts are unique to the manufacturing business?
raw materials, direct labor, work in process & finished goods.
Name the 2 expense categories used in manufacturing.
Mfg. expenses and general overhead.
When is an expense item charged to the manufacturing category?
When it is ONLY required for manufacturing.
When are the 13th month adjusting entries prepared?
After the 12th month entries are posted and the 12th month reports are prepared.
What is the very last entry made in the year?
Closing out all Sales, Costs & Expense Accounts.
In a corporation, to which capital account are year-end earnings transferred?
The earnings are transferred to Retained Earnings.
In a proprietorship, to which capital account are year-end earnings transferred?
The earnings are transferred to the Owner's Equity Account.
Name the 3 types of audits.
Independent audits, compliance audits, internal audits.
List the 3 steps of the audit process.
1. compare each material asset & liability account w/ an outside source 2. identify & research anamolies in the sales, cost of sales & expense sections in the GL 3. Investigate ea. account w/ an eye for improvement.
What is an account reconciliation?
A comparison of a general ledger account w/ a different related source to understand their differences.
PP&E records contain information on what type of assets?
They contain information on fixed assets also known as PP&E.
How do you calculate the gain or loss on the sale of a fixed asset?
The selling price minus the book value equals the gain or loss.
To what account do you enter the gain or loss on the sale of equipment?
You enter the gain or loss in the Profit or Loss on Disposal of Fixed Assets Acct.
How do you record the cost of inventory sold?
Debit (DR) cost of goods, credit (CR) inventory.
How do you calculate earnings?
Earnings equals sales minus costs minus expenses.
What are 3 ways to determine cost of sales?
Specific Identification, SPECs, Percentage of sales.
What is specific identification?
Recognizing the cost at the time of the sale.
What is SPECs?
Starting inventory plus purchases minus ending inventory equals cost of sales.
What is percentage of sales?
Using an avg. cost percentage of sales to determine the cost of sales.
How do you calculate mark up?
gross profit divided by cost.
How do you calculate gross profit margin?
Gross profit divided by the selling price.
What 2 ways can you calculate cost margin?
Cost divided by selling price or sales (100%) minus gross profit margin.
What 3 ways can you calculate selling price?
Cost divided by cost margin, gross profit divided by gross profit margin, and cost multiplied by desired mark up. (remember to add 100 to whatever the desired mark up is to get the correct price)
How do you calculate cost?
Selling price multiplied by cost margin.
What 2 ways can you calculate gross profit?
Selling price multiplied by gross profit margin or sales minus cost.
What are the first things to establish when setting up books for a business?
The chart of accounts and beginning balances.
As of what date should you prepare the beginning balances?
The last day of the previous month.
What 5 items should you request from the owner of an existing business when setting up their books from scratch?
check register, recent bank statement, recent tax return, list of all receivables, list of all paybales.
To what account do you credit the remaining capital balance when establishing the first balance sheet for an existing company?
Prior periods adjustments.
What 3 accounts exist in accrual but not cash accounting?
1. accounts receivable 2. inventory 3. accounts payable
What principle makes cash accounting different than accrual accounting?
In cash accounting we record the income and expense when cash changes hands, regardless of when the sale or purchase was made.
What are the primary advantages of cash accounting?
Cash accounting is simpler and it allows us to manipulate the taxable income.
What is the primary advantage of the accrual system?
It's more accurate.
Will cash accounting always provide a higher net income?
No. Half the time, cash accounting net income will be lower than accrual accounting net income.
Why do we use "cash to accrual' conversion accounts instead of distributing income and expenses to their final account?
For simplicity, and to isolate the adjustment for easy elimination by the income tax preparer.