ACCOUNTING Flashcards
shows the financial condition/position of a business as
of a given period. It consists of assets, liabilities, and
equity.
Statement of Financial Position or Balance Sheet
shows the results of operations for a given
period of time. It consists of the revenue, cost, and
expenses.
Income Statement or Statement of Comprehensive
Income
summarizes the cash
receipts and cash disbursements for the accounting
period.
It summarizes the cash activities of the
business by classifying cash inflows (receipts) and
cash outflows (payments or disbursements) into
operating, investing, and financing activities. It shows
the net increase or decrease of cash in a given period
and the cash balance at the end of the period. This
allows management to assess the business’ ability of
generate cash and project future cash flows.
statement of cash flows
This
allows management to assess the business’ ability of
generate cash and project future cash flows.
statement of cash flows
shows the changes
in the capital or owner’s equity as a result of additional
investment or withdrawals by the owner, plus or minus
the net income or net loss for the year.
statement of changes in equity
are the
supplemental notes that are included with the
published financial statements of a company. The
notes are used to explain the assumptions used to
prepare the numbers in the financial statements, as
well as the accounting policies adopted by the
company. They help different types of users, such as
financial analysts and investors, to interpret all the
numbers added to the financial statements.
Notes to the Financial Statements
They help different types of users, such as
financial analysts and investors, to interpret all the
numbers added to the financial statements.
Notes to the Financial Statements
Are present economic resources controlled by an entity as a
result of past events. An economic resource is a right that has
the potential to produce economic benefits.
assets
type of asset that is Expected to be realized in, or is intended for sale or
consumption in the entity’s normal operating cycle;
current assets
type of asset that is held primarily for the purposes of trading
current asset
type of asset that is Expected to be realized within twelve months of the
balance sheet date; or
Cash or cash equivalent unless it is restricted from
being exchanged or used to settle a liability for at least
twelve months after the balance sheet date.
current asset
cash – coins, currencies, checks, bank deposits, and
other cash items readily available for use in the
operations of the business.
current assets
Cash equivalents – are short-term, highly liquid
investments that are readily convertible to known
amounts of cash which are subject to an insignificant
risk to changes in value.
current assets
Marketable securities – are stocks and bonds
purchased by an enterprise and are to be held for only
a short span of time or duration. They are usually
purchased when a business has excess cash.
current asset
amount collectible
from the customer to whom sales have been
made or services have been rendered on
account or credit.
accounts receivable
promissory note issued by
the client or the customer in exchange for
services or goods received as evidence of
his/her obligation to pay.
notes receivable
amount of interest
collectible on promissory notes received from
customers or clients.
interest receivable
certain amount of
money loaned to employees payable in cash
or through salary deductions.
Advances to employees
– income already earned buy
not yet collected.
Accrued income
represent the value of unsold goods at
the end of the accounting period.
inventory
include supplies bought for use in
the business or services and benefits to be received by
the business in the future for which payment has been
made in advance.
prepaid expenses
are accounts deducted form
the related asset accounts.
contra-asset accounts
losses due
to uncollectible accounts. This is deducted
from the accounts receivable account to get
the net realizable value of accounts
receivable.
Allowance for doubtful accounts
represents the
expired cost of property, plant, and equipment
as a result of usage and passage of time. This
is deducted from the cost of the related asset
account to get the carrying amount or book
value of the asset.
Accumulated depreciation
Long-term investments are assets held by the
enterprise for the accretion of wealth through capital
distribution such as interests, royalties, dividends, and
rentals, for capital appreciation or for other benefits to
the investing enterprise such as those obtained
through trading relationships.
non-current assets
Property, plant, and equipment are tangible assets that
are held by the enterprise for use in the production or
supply of goods or services, or for administration
purposes. These assets are expected to be used for
more than one accounting period.
ex: Land
b. Building
c. Equipment
d. Furniture and fixtures
non-current asset
Intangible assets – identifiable, non-monetary assets
without physical substance held for use in the
production or supply of goods or services, for rental to
others, or for administrative purposes. These include
goodwill, patents, copyrights, licenses, franchises,
trademarks, brand names, secret processes,
subscription lists, and non-competition agreements.
non-current assets
is a present obligation of an entity to transfer an
economic resource as a result of past events.
liability
It is expected to be settled within the entity’s normal
operating cycle;
2. It is held primarily for the purpose of being traded;
3. It is due to be settled within twelve months after the
balance sheet date; or
4. The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after
the balance sheet date.
current liability
is prepared by the seller of the goods and sent to the
buyer.
sales invoice
a document issued by the carrier- a trucking,
shipping, or airline- that specifies the contractual conditions and
terms of delivery such as freight terms, time, place, and the person
named to receive the goods.
bill of lading
is a formal notice to the debtor detailing
the accounts already due; commonly used by service businesses
statement of account
evidences the receipt of cash by the seller or the
authorized representative. It notes the accounts being paid and
other details of the payment.
official receipt
a written request to the purchaser of an
entity from an employee or user department of the same entity
that goods be purchased.
Purchase requisition
an authorization made by the buyer to the
seller to deliver the merchandise as detailed in the form.
Purchase order
encourage the buyer to purchase products in
greater quantity.
Trade discounts
No entry is made in the accounting books to record trade discounts.
Instead, all accounting entries are based on the invoice price.
are given to encourage prompt payments; reducing the
amount of resources tied up in accounts receivable.
Cash discounts
is primarily used by businesses that
sell relatively inexpensive goods and that are not yet using
computerized scanning systems to analyze cost of goods sold.
periodic inventory system
no entries are made to the inventory account as
the merchandise are bought and sold.
periodic inventory system
is an alternative to the periodic
inventory system.
Perpetual inventory system
the inventory account is continuously updated.
is advisable for firms that sell low volume, high priced goods
such as motor vehicles, jewelry and furniture.
Perpetual inventory system
the effects of
transactions and other events are recognized when they
occur and not as cash is received or paid.
Accrual basis
transactions are not recorded
until cash is received or paid.
Cash basis
cash receipts are treated as revenues and cash
payments as expenses.
The only way to know how successfully a business has
operated is to close its doors, sell all its assets, pay the
liabilities, and return any excess cash to the owners.
liquidation
not a practical way of measuring business
performance.
periodicity concept
To provide timely information, accountants have divided
the economic life of a business into artificial time periods.
This assumption is referred to as the
periodicity concept.
a period of any twelve consecutive months
Fiscal year
12-month period ending December 31
Calendar year
12-month period that ends when
business activities are at their lowest level of the annual
cycle.
Natural business year
a period of less that one year
Interim period
are expenditures paid in advance. These
prepayments are assets, not expenses.
Prepaid expenses
is the amount that the entity has paid to
acquire the depreciable asset.
Asset cost
the amount that the asset can
probably be sold for at the end of its useful life.
Estimated salvage value
the estimated number of periods
that an entity can make use of an asset.
Estimated useful life
