Accounting Flashcards
Choosing a methodology for an accounting item and treating all similar items using the exact methodology is known as what principle?
Consistency principle
Define a liability
A future payment obligation of the company
Define an asset
A tangible or intangible resource owned by the company.
Define GAAP
A widely accepted set of standard guidelines for financial accounting.
Define net income before taxes
= Operating profit + non-operating income - Non-operating expenses
Define net worth
= Assets - liabilities
Define posting
Recording a journal in the ledger
Define the general ledger
A record of all the financial transactions of an entity
Define working capital
= Current assets - current liabilities
Difference between current and long-term assets
Current assets are expected to be converted into cash within a year while long-term assets are held longer than a year.
Do you book a debit or a credit to increase a liability account?
Credit
Do you book a debit or a credit to increase an asset account?
Debit
Do you book a debit or a credit to increase an equity account?
Credit
Do you book a debit or a credit to increase an expense account?
Debit
Do you book a debit or a credit to increase an income account?
Credit
Do you book a debit or a credit to increase a revenue account?
Credit
Explain the concept of double-entry accounting.
For every debit there is an equal offsetting credit and the converse is true for every credit there is an equal offsetting debit.
Financial statements that shows a company’s revenues, expenses and profits over a period of time.
The Income Statement
Financial statement that shows a firm’s assets, liabilities and owner’s equity at a point in time.
The balance sheet
Formula for owner’s equity
Assets minus liabilities
A liability due within a year is known as?
A current liability
A listing of debits and credits to be entered into a ledger is known as?
A Journal
List some common liability accounts that payroll impacts.
- Taxes payable
- Benefits payable (ie. 401k, FSA)
- Garnishments payable
- Employee Stock Purchase Plan liability
List the steps in the accounting cycle.
- List transactions in journals
- Post journals to ledgers
- Prepare the trial balance
- Post accruals and adjustments
- Prepare the adjusted trial balance
- Prepare the financial statements
- Close the books
- Reconcile the accounts
- Post reversing entries to begin the next period.
The matching principle
Matching expenses and revenues to the accounting period in which they actually incur.
Recording revenue and income when actually earned is what accounting principle?
Realization principle
The Sincerity Principle
That an accounting professional will reflect the company’s financial position truthfully.
True or False: A debit entry always decreases an account and a credit entry always increases it.
False. Debit means left and credit means right. Whether or not a debit/credit increases or decreases an account depends on the type of account.
What is a chart of accounts?
A listing of general ledger account numbers and names.
What is a company’s “bottom line”?
= Net income before taxes - taxes
What is an accounting transaction?
A change to the value of an asset, liability or equity.
What is FASB?
Financial Accounting Standards Board that sets the standards for financial transactions.
What is the classification of each asset, liability, expense and revenue called?
An Account
When using a single unit of currency to record transactions in a company’s financial statements an accountant is following what principle?
Monetary Unit Principle
When would you run a trial balance?
After all journals have been posted to the general ledger.
Why do you run a trial balance?
To prove that debits and credits are equal in the general ledger.
