Accounting Cycle Flashcards
What are the steps in the accounting cycle?
Analyze transactions, Record the effects of transactions, Summarize the effects of transactions, Prepare reports
What is the purpose of business documents?
To confirm a transaction occurred, establish the amount to be recorded, and facilitate the analysis of business events
What is the purpose of the financial accounting cycle?
Turn transactions into financial statements and provide useful financial information for decision-makers. (Make transactions into actionable data)
What is a transaction?
Interaction where two parties exchange something of value
What business documents are used?
sales invoices, purchase orders, check stubs, canceled checks, electronic payment records, etc
What items are entered into FAC
Anything monetarily quantifiable, sale/delivery of product, payment of wages, borrowing money from a bank, investments from owners, increase/decrease in value of investments in other companies, etc
Internal Transaction
A transaction that occurs within a company, does not involve an external party and is not recorded in the company’s financial records
External Transaction
An exchange that occurs between a company and an external party and that is recorded in the financial records of the company
Arm’s-length transaction
A transaction where a buyer and seller act independently to get the best possible deal
What is the accounting equation?
Assets = Liabilities + Owners’ Equity
What is an asset?
what a company has in resources; can be land, buildings, products, employees, money
what are liabilities?
Method of financing resources that require payment, ex. loans from bank
What is owners’ equity?
A method of financing resources that does not require repayment and represents ownership interests in the business, ex. owners funneling money into a business
What is an account?
A “place” where we record the effects of all transactions that relate to a certain item, ex. cash account, accounts payable account, employee wage expense account
What are dividends?
Money paid to the owners, reduces owner’s equity
