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27 Cards in this Set
- Front
- Back
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Accounting Equation
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Assets = Liabilities + Owners' Equity (or Stockholders' Equity)
Each transaction will affect one or more parts of the equation Each transaction must balance AND the accounting equation must BALANCE |
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Assets
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Resources; "Stuff we own"
Used to generate revenues |
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Liabilities
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Creditors' claims against resources
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Equity
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Owners' claims against resources
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Economic Event (Transaction)
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has 2 sides: give and take
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Double Entry Accounting
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Debits ALWAYS = Credits
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Accounts
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1) There may be multiple "Resources" & "Claims to Resources"
2) Each "Resource" or "Claim to resource" is set up as an account IE. Cash in a bank, cash in a coffee can, note payable (debt) & Owners' Equity |
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Journal Entries
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Good Form:
Date, Debit, Credit & Brief description of transaction |
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T-Account
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Simplified depiction of an account:
Account Name (Above) Debits (DR) [Left] Credits (CR) [Right] Each T-account represents a single account in the general ledger |
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Netting a T-Account
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Netting the Debits and Credits to find and Ending Balance (End. Balance)
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Normal Balance
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For each transaction, the total debits equal the total credits.
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Accounting Equation Properties
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Assets are inversely proportional to Liabilities AND Owners' Equity
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Types of Business Entities
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Proprietorship, Partnership & Corporation
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Proprietorship
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Form: Proprietorship
Ease: Simple Legal Liability: No Limit Taxation: Non-Taxable Limited Life: Yes Capital Access: Limited |
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Partnership
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Form: Partnership
Ease: Simple Legal Liability: No Limit Taxation: Non-Taxable Limited Life: Yes Capital Access: Average |
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Corporation
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Form: Corporation
Ease: Complex Legal Liability: Limited Taxation: Taxable Limited Life: No Capital Access: Extensive |
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External (Financial Accounting):
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Users: Investors, Competitors, Lenders, Government, Employees, the Press, Customers, Suppliers
Examples of Financial Reports: 1) Income State. 2) State. of Stockhldr Equity 3) Balance Sheet 4) State. of cash flows |
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Internal (Managerial Accounting):
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Users: Management
Examples of reports: Budgets Cost analyses Performance reports |
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Relevance
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Capacity to make a difference in a decision
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Reliability (Faithful Representation)
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Free from error and bias
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Financial Activities
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Obtain capital/funding from external sources (investors/creditors and to repay them)
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Investing Activities
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Use capital to purchase long-term (LTA) assets to generate revenue and also to sell LTA assets
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Operating Activities
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Normal/repetitive revenue & expense transactions that are primary operations of business conducted to earn a profit
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Revenue
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Timing and Recognition:
SALE is complete (revenue has been EARNED) AMOUNT of Revenue can be measured COSTS of generating revenue can be determined PAYMENT is reasonably assured Note: Company booking revenue must have the “risks & rewards” of ownership |
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Expenses
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Timing and Recognition:
As assets are consumed/used up in the process of generating revenues, the value of the asset is REDUCED (expense has been INCURRED) |
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Permanent Accounts
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1) NOT CLOSED at year end
2) Balance Sheet accounts: Assets, Liabilities & O/E (S/E) 3) Balances ARE carried forward to next period |
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Temporary Accounts
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1) ARE CLOSED (brought to a zero balance) at end of accounting period
2) Income Statement accounts: Revenues & Expenses 3) Statement of Stockholders’ Equity account: Dividends 4) Balances are NOT carried forward to next period |
