Accounting for Business Owners Flashcards
Negatives of Cash
1.
2.
3.
4.
- Difficult to keep track of
- Receipts get lost
- Cash misused
- Does not comply with federal and state reporting guidelines
Which accounting basis has no accounts receivable?
Cash
Accrual Basis
Revenues are recorded when cash is earned
Which basis has no accounts receivable?
Cash
What do Business Checking Accounts do
1.
2.
- Provides a record of all payments
- Provides a record of all deposits
which basis is used by medium and large businesses?
accrual
The purpose of accounting
1.
2.
3.
4.
5.
6.
- Increase your business skills
- Reduce overhead
- Reduce areas of non-profitability
- Comply with state and federal laws
- Account for all cash flow
- Provide information for insurance companies
What provides the main sources of record keeping?
A combination of business credit cards and a business checking account will provide the main sources of record keeping.
On a cash basis, expenses are recorded when?
When paid
Which basis conforms to GAAP
accrual
What dictates the recording process of cash basis?
Cash
which basis uses accounts payable
accrual
On an accrual basis, expenses are recorded when?
When incurred
Which basis are tax returns prepared on
Cash Basis
Do not mix X and Y. Doing so will create a possible “flag” for being audited.
Personal and business
Business Credit Cards
1.
2.
3.
- Great way to track purchases
- Easy to return purchases for credit
- Monthly statements provided
Which basis is formal accounting basis?
accrual
There are two basis for accounting 1 2
Cash basis Accrual Basis
Which basis has no recorded of expenses on credit?
Cash
Which basis is used by small businesses?
Cash
which basis is taught in all accounting classes
accrual
Cash basis
Revenues are recorded when cash is received
Which basis has user accounts recievable
accrual
Accounts payable: current X
liability
Accounts payable: Amounts owed to X
amounts owed to suppliers by business
Accounts payable: Equity:
Amount of assets remaining after all liabilities are paid off. The true ownership value
Accounts Receivable Current X
asset
Are accounts receivable: liquid or not as liquid
not as liquid
Are accounts receivable: amounts owed to X
Business by customers for services
Cash: current X
asset
Cash is it liquid?
Most liquid
examples of cash
Currency,
coins,
bank accounts,
money market accounts,
commercial paper,
certificates of deposit (less than 90 days)
What are current assets?
Assets that can be turned into cash within 1 year
Current assets examples?
cash, accounts receivable, inventory, prepaid insurance, supplies
What are current liabilities?
Payments of debt within 1 year
What is Depreciation:
Write off to a long term asset or The write off of the fixed assets (except land) during the accounting period (1 year)
What type of expense is depreciation?
non cash expense
2 methods of depreciation?
Straight line and declining balance
Expenses:
Cost of doing business during the current accounting period
Expenses: When could the expenses been paid?
During the accounting period
Expenses: Where could the expenses have been incurred?
on credit (Example: accounts payable for supplies)
Fixed assets:
long term asset
examples of fixed assets
Land, building, equipment, computers, fixed of physical assets used by the business to generate profits.
Long Term Liabilities:
payment of debt that exceeds 1 year
long term liability examples
notes payable, mortgage
what kind of liability is Mortgage note Payable
long term liability
Mortgage note Payable:
amount owed for land or building
Net worth:
Assets minus all liability
Revenues:
Amount earned by the business during the current accounting period (1 year)
What form can Revenue be earned as
cash revenue or revenue on credit
Basic Law of Business:
Always have:
Attorney Accountant
Accounting:
The Government requires that X
all records be kept
Which government agencies require that records be kept
Internal Revenue Service Michigan Department of Treasury
A business owner should keep their records a MINIMUM of X
seven (7) years
Personal records should be kept a minimum of X
three (3) years
Six types of required records:
- Sales receipts
- Check register and Credit Cards
- Bank statements
- Payroll Records
- Out of Pocket Expenses
- Employee Business Expense
Fixed Assets -Net Worth Ratio formula:
Fixed assets / net worth (total assets - liabilities)
Gross Profit - Sales Ratio formula
Net Sales (Sales - Direct Sales Expenses) / sales
Gross Margin Ratio (Profit Margin) formula
gross profit (net sales - cost of goods sold) / net sales
