Accounting Review Pre-CORE Flashcards
What is the accounting equation?
Assets=liabilities + Shareholder’s Equation
What is the definition of an asset?
Probable future economic benefit. Lemons for stand.
Where are assets found?
On the balance sheet
Assets we will use within one year
Current assets. Lemons, sugar, water.
Assets we will use or hold longer then 1 year
Long term assets. Lemonade stand.
Accounts receivable (A/R) results from:
sales on credit. Person promising to pay me back tomorrow for cup of lemonade.
What three things are included in inventory?
Raw materials, work in progress, and finished goods.
Lemons, pitcher with water in it, but no sugar, and a pitcher of lemonade.
What are the four types of assets?
Cash, Accounts Receivable (A/R), Inventory, and Building
Cash, money owed for lemonade, lemons, sugar, cups, Ince, water, lemonade stand
What are the two options for recording costs?
Assets and expenses
What is the difference between an asset and an expense?
Assets will benefit in the future (lemonade stand) while expenses benefit us in the present (rent to mean old lady whose house our lemonade stand sits in front of)
Expenses are recorded where?
Income Statement
Assets are recorded where?
Balance sheet
Do assets reduce net income?
Net income is not reduced
What is the formula for net income?
revenue-expenses=net income
Why do all assets either become cash or an expense?
Assets are sold off for revenue or they are used to generate revenue
What question must we ask ourselves to determine if inventory will move from an asset to an expense?
Is the cost incurred benefitting our company in the future or in this period?
Inventory is initially recorded as:
an asset
When is inventory recorded as an expense?
Moved to COGS when inventory is sold and revenue is recorded
How do you calculate gross profit?
Revenue-COGS=Gross profit
Under what circumstances would the assets of our lemonade stand become an expense?
Though initially recorded as an asset, the building/lemonade stand would become an expense as the value of the stand depreciates
When do we record expenses?
Expenses are recorded in the same period as they help us to generate revenue.
When depreciation expenses occur what happens to the assets and expenses accounts?
The assets account is decreased and the expense account is increased
What is a book value?
the value of a building at the end of the year (after the depreciation of the building)
What is the formula for net income?
Revenue-expenses
