2 | The Accounting Process Flashcards
What is an External Transaction Event?
An exchange between the company and another entity.
Ex: buying inventory or borrowing money.
What are economic events?
Events that changes the firms resources/obligations aka financial position.
What is an Internal/Non-Transaction Event?
Events that do not involve an exchange transaction but does affect the company’s financial position.
Ex: Depreciation
What is an Account?
A device/mechanism to track increases/decreases of any particular asset/equity/expense or Revenue item.
What is Owner’s Equity?
Paid-In-Capital + Retained Earnings
Retained Earnings = Revenues/Gains
- Expenses/Losses
- Dividends
What is a General Ledger?
A collection of storage areas, called accounts, used to keep track of increases/decreases in financial position elements.
In the double-entry system, debit means…
the left side if the account.
In the double-entry system, credit means…
…the right side if the account.
Asset increases are entered on the…
…debit (left) side of accounts.
Liability & Equity increases are entered on the…
…credit (right) side of accounts.
What are Permanent Accounts?
Represents the basic financial position elements of the accounting equation (assets, liabilities, & shareholders’s equity)
What are Temporary Accounts?
Track changes in the a retained Earnings component of the shareholders’s equity (revenue/gains, expense/losses and dividend transactions. Zeroed out and dumped into Retained Earnings.
What are Adjusting Entries?
Entries to record internal events at the end of a period when financial statements are produced. No source documents.
Ex: Unearned Revenue (Accruals), prepayments (deferrals), estimates.
What are Accrued Liabilities?
Liabilities recorded when an expense has been incurred prior to cash payment.
Journal entries:
Credit sales for the month totaling $10,000. The COGS was $1,000.
Debit Accounts Receivable $10,000
Credit Sales Revenue $20,000
Debit COGS $1,000
Credit Inventory $1,000
