Accounting Flashcards
What is accounting?
a formal process of identifying, recording, measuring, communicating and interpreting financial information
the first objective of accounting
Provide information to people who need to make decisions about the business
the second objective of accounting
Ensure accountability
the third objective of accounting
evaluate the performance of the business
Accounting information and records must be:
- accurate
- reliable
- relevant
what is the accounting equation?
OE=A-L
other than OE=A-L, what are two other ways you can write this equation?
A=OE+L
L=A-OE
assets
Items of value owned by the business
Liabilities
Amounts owed by the business
Owner’s equity
The value of the owners investment in a business, and therefore the amount that the business owes back to the owner
capital
the name of the account used to record the owners contributions to a business
drawings
the name of the account where businesses record that the owner has withdrawn assets from the business for personal use
Balance sheet
a financial report summarising a businesses assets, liabilities and owners equity
account reveivable
money that customers owe to the business
accounts payable
amounts of money the business owes to others
inventories
goods a business buys for resale to customers
bank overdraft
a negative value in the business’ bank account
mortgage on land
repayments made on a purchase that required a loan from the bank
order of liquidity
how quickly the account can be converted to cash
write assets in order of liquidity
- petty cash
- cash at bank
- accounts receivable
- inventories
- motor vehicle
- land
accounting entity convention
distinguishes between the owner of the business and the business itself- treating them as 2 different identities
accounts
individual records showing all increases and decreases to the financial value of each item in the business
trading enterprise
a business that buys goods (inventories) and sells them as a higher price
Service enterprise
a business that provides services to customers for a fee
revenue
income earned by the business; sale revenue, interest revenue and rent revenue
expense
costs incurred by a business in order to earn revenue and keep the business operating; wages, electricity, rent and supplies
what can you determine from having the accounts revenues and expenses?
whether the business is making a profit or not
the double-entry accounting
system of accounting which states that for every transaction there is a debit (DR) entry and a corresponding credit (CR) entry of equal value
