Accounting Flashcards
What do accountants do?
- They record, analyse and interpret financial or economic activities of a business.
- Make meaningful and effective decision based on up to date and accurate records of a company.
Most activities that a business engages in are about financial worth list them.
- How much will any or all of this cost
- how much were our expenses last year
- How much money do we have to afford a new store or addition
- How much money can we afford to spend on
- is it wise for us to merge with another business?
What are transactions?
- Recorded activities of a business that involve money
- They occur when something of value is exchanged between parties.
- Large businesses can conduct up to thousands of transaction in a single day.
What is bookkeeping?
recording of all transactions for a business in a specific format
What is double-entry bookkeeping?
- each transaction involves 2 changes
-one increase results in one decrease, two increases result in two decreases.
For example, a business pays $100 for labour
-this decreases cash balance
-increase in expense labour
What is personal accounting?
-less about recording transactions and more to do with determining Net worth
what is net worth/ personal equity?
The value of everything you own after all debts are paid.
What are assets
something that has value and is owned by a person for example if you have a bicycle that is an asset
What are liabilities
debt or amount owed to other for example you owe your dad $100 towards your phone.
How do you find Net worth
Assets-libilities= net worth for example if Julie has $1400 as a total asset and debt of $300 her net worth would be $1400-$300= $1100
What is business & financial statements
- presents financial information in a way that helps business people keep track of the financial health of the business
1. balance sheet
2. income statement
3. statment of cash flow
What is balance sheet
-The snapshot that indicates how a business is doing on a specific day.
- does not indicate whether a business has made a profit
The sheet is balanced because the left side must equal the right side
list all formulas of assets, liabilities and owners equity
- Assets-liabilites= net worth
2. liabilites+ net worth= Assets
Assets must…?
-provide future economic benefit (i.e help make $$)
-cost principle- recorded at historical cost (the price you paid on the day you bought them)
deprecation-loses value over time
What are the current assets?
Items owned by a business that is “used up quickly, usually in on year or less”
listen in order of liquidity
What is liquidity
how easily the assets can be converted to cash. (most liquid to least liquid)
- cash
- accounts receivable
- inventory
- supplies
what is accounts receivable
Money owed to the business by customers usually paid within 30 days
What are fixed assets
Item that a business keeps for a longer period of time and uses to perform service
listed in order of useful life-longest useful life to shortest useful life
1. land
2.building
3.equipment
4. furniture
5. vehicles
What is accounts payable
purchases made on credit/account that have not yet been paid
what are current liabilities
debt that must be paid within one year
What is revenue
what are expenses
revenue: Money or the promise of money, received from sales of goods or services
Expenses: expenditures that help a business generate revenue
Why is income statement important
- owners want to know if they’re making profit
- investors or banker want to know whether to invest or loan money
- to pay taxes, a business must know its profit/loss
What are operating expenses?
They are costs of operating the business; used to help generate revenue for example salaries, advertising & utilities.
What is matching principle
all the costs of doing business in a particular time period are matched with the revenue generated during the same period.
how is net profit calculated
net profit is calculated first then transferred to the balance sheet as part of owners equity.
Creditors and owners have claims on the assets of the business.
What is cash flow statement
A summary of the cash-in and cash-out transactions of a business
helps to predict the amount of cash it needs to meet obligations.
What are ways to increase cash flow
- might seek extra investment
- reduce inventory purchases
- increase effort to collect account receivables
