Accounting Flashcards
Accounting
Accounting is an art
Accounting involves interconnected phases
Concerned with transaction and events having financial character
Business transactions are expressed in money
Interpreting the results
Purpose of accounting
provide information to different users. The users utilize the information in making economic decisions.
Users of financial statement
Owners Andie esters Managers Lenders Suppliers Government Public
Types of accounting
Financial accounting Managerial accounting Cost accounting Auditing Tax accounting Forensic accounting
Areas of accounting
Private accounting
Public accounting
Government accounting
Types of business
Service business
Merchandising business
Manufacturing business
Hybrid business-restaurant
Forms of business organization
Sole partnership
Partnership
Corporation
Limited liability company
Elements of accounting
Assets
Liability
Capital
Assets
assets are properties or rights owned by the business.
Types of assets
1 Current. - useful for a period of 12 months
Cash , accounts receivable,inventories
2Non current-useful for a period of more than 12 months
Long term investment ,land ,building
Liabilities
Liabilities are economic obligations or payables of the business.
Types of liabilities
Current —due within 12 months
Ex -accounts payable ,interest payable,rent payable
Non current-not due within next 12months
Ex -mortgage
Capital
capital is equal to total assets minus total liabilities.
Capital also known as equity
Income
Income refers to an increase in economic benefit during the accounting period in the form of an increase in asset or a decrease in liabili
Expense
decrease in asset or an increase in liability that result in decrease in equity,
Basic accounting equation
Asset=liability+Capital
GAAP generally Accepted Accounting Principle
Primary purpose of GAAP is to ensure usefulness of financial information
Principles of GAAP
1Business entity principle
Every business accounted separately from its owner
2cost constraint principle(GAAP)
All transactions are recorded based on actual cash
3going concern assumption principle(GAAP)
Business will continue operating instead closed
Currency (GAAP)
Transactions and events must expressed in money
Revenue recognition principle(GAAP)
Revenue is recognized at the time it is earned
Measurement (GAAP)
Key methods of recording financial transactions Historical cost Current cost Realizable value Present value
Single entry book keeping
The single entry bookkeeping system does not explicitly record the two-fold effect of transactions. Under this method, separate books are maintained for the company’s basic accounts such as cash, receivables, and payables. Therefore, the accounting records are incomplete.