Accounting Flashcards
What are the types of Organizations?
Sole proprietorship: single owner
Partnership; 2 or more owners
Corporation: has many owners who do not participate in the daily operation of the business
What is accounting?
An information system for the analysis, recording, and summary of operating activities of a business.
Types of financial reporting?
Internal- reports are prepared on both a regular schedule and as needed basis, available to people inside the company.
External- reports are issues to people and agencies that are outside the company.
Who uses external reports?
Creditors(banks), Investors(stockholders), Directors, Government agencies, Customers
The basic accounting equation?
Assets= Liabilities + Stockholder’s Equity
5 types of financial statements
Income statement Cash flow Balance sheet Retained earnings Trial balance
What do creditors use financial statements for?
Asses the company’s ability to repay its debts
Determine if there are enough assets to cover liabilities
General Accepted Accounting Principles
These are the rules of accounting established by the Financial Accounting Standards Board (FASB) which governs all accounting.
What is a Financial statement?
Accounting reports that summarize the financial results of operating, investing, and financing.
What is a Balance Sheet?
A report showing the financial position of a company as of a SPECIFIC date. usually the end of the fiscal year.
What are the three types of operating activities?
Financing- to acquire cash to run business
Investing- acquisition of long-term assets such as equipment.
Operating- acquisition of smaller assets for daily usage.
Types of transactions?
External exchanges- transactions between the company and outsiders (sales + buys)
Internal events- things that occur internally, ie raw materials into products.
How are transactions entered into the general ledger?
They are entered by way of journal entry.
What do journal entries consist of?
- accounts being debited
- accounts being credited
- brief description of the event being recorded
What increases by Debit and what increases by Credit?
Assets and expenses are increased by DEBIT
Liabilities, equity, and revenue are increased by CREDIT
What is an income statement
A summary of the results of operations for a business over a specific period (month, quarter or year)
Two types of accounts are on income statement?
Revenue accounts- are used to report the various types of income received by the business
Expense accounts are used to report the ways in which the business spent
What is Net Income?
Net Income is the excess of total revenue over total expenses
What are the accounting methods?
The accounting method is how the business chooses to report its income and expenses.
