2 - Key Accounting Concepts Flashcards
When the business has to be accounted for as being separate form the owner.
What principle?
Entity principle
All revenues are reconciled with the appropriate expenses.
What principle?
Revenue recognition principle and expense recognition principle
The best objective system to record the costs of goods.
What principle?
Cost principle
Revenue should be earned only when service/goods have been provided.
What principle?
Profit recognition principle
Which business has limited liability?
Company
What is cash-basis accounting?
Records only cash receipts and cash payments.
Ignores receivables, payables and other times.
Only very small businesses use the cash basis of accounting.
What increases and decreases in assets?
+ debits
- credits
What increases and decreases in liabilities?
+ credit
- debit
What increases and decreases in owner’s equity?
+ credit
- debit
Define Asset
Something a company owns which has future economic value
Define Liability
Something a company owes
Define Owner’s Equity
It is what is left of the assets after liabilities have been deducted.
Same as net assets
What is the equation for Owner’s Equity?
Owner’s Equity = revenues + expenses - drawings - dividends + capital
Define Revenue
The amount received or to be received from customers for sales of products or services
Define Expenses
Amounts that have been paid or will be paid later for costs that have been incurred to earn revenue.
You have used up the service, so you pay
