Accounting Test 1 Flashcards by Alessia Velasquez Nitti

Income statement

shows revenue and expenses (result will be net income or loss)

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Statement of retained earnings

equity (looking at what happened to it over a period of time)

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Balance sheet

assets, liabilities, and equity (snapshot of only one day)

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statement of cash flows

cash in + out flows

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financial statement

business documents that companies use to report results of their activities to various user groups

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accounting cycle

the process by which a sompany’s financial statements are prepared

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financial accounting

prepares info for decision makers outside the entity

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proprietorship owners

one owner. these tend to be small retail stores or solo providers

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partnership owners

two or more owners

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LLC owners

members

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corporation owners

stockholders- generally many owners

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proprietorship liability

proprietor is personally liable

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partnership liability

general partners are personally liable

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LLP ownership

partners- two or more owners

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LLP liability

partners are not personally liable

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LLC liability

members are NOT personally liable

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Corporation liability

Stockholders are NOT personally liable

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Assets

economic resources expected to produce benefit in the future (is money now or will be in future)

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Liabilities

“outsider claims”- things we owe to others

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Owners equity

equity- insider claims

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accounting equation

assets = liabilities + equity

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common stock

corp issues to stockholders as evience of ownership

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retained earnings

amount earned by income producting activities (revenue increases and expenses and dividends decrease it)

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Statements of cash flows

reports cash reciepts and payments in operating, investing, and financing activities

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accounts receivable

money that company will get from clients/consumers later

cash is ___

asset

accounts recievable is _____

asset

inventory is ______

asset

prepaid expenses is ____

asset

Investments are ____

assets

Property is _____

asset

common assets

cash, accounts receivable, inventory, prepaid expenses, investments, and property

common liabilities

accounts payable, notes payable, and accrued liabilities

common stock is ____

equity

retained earnings are ______

equity

dividends are ____

equity

revenues are ____

equity

expenses are ____

equity

accrual accounting

records the impact of a transaction as it occurs

cash-basis accounting

records only cash transactions (reciepts and payments)

adjusting entries include:

deferred revenue, depreciation, accruals

deferred revenue

a deferral is an adjustment for payment of an item or reciept of cash in advance

accrual

the opposite of a deferral. for an accrued EXPENSE

prepaid expenses

paid in advance. these are *assets* because they provide future benefit

book value

net amount of a plant asset (cost minus accumulated depreciation)

accrued expense

a *liability* froom an expense that has not yet been paid

unearned revenue

collecting cash from customers before earning the revenue. this is a *liability*

closing the books

preparing the accounts for the next period's transations

closing entries

set the revenue, expenses, and dividends back to zero at end of a period

permanent accounts

assets, liabilities, and equity ( does not get adjusted or closed)

temporary accounts

revenues and expenses related to a limited period (these do get adjusted)

liquidity

how quickly an item can be converted to cash

net working capital

(total current assets- total current liabilities)

current ratio

total current assets/total current liabilities

good number for current ratio

between 1.2-1.5

debt ratio

total liabilities/total assets

good number for debt ratio

below 0.6 ish. the norm is 0.6-0.7ish

closing process in steps:

1. debit revenue, credit retained earnings 2. credit each expense, debit retained earnings 3. credit dividends, debit retained earnings

assets t account

debit (+); credit (-)

liabilities t account

debit (-); credit (+)

the two groups for equity in t account

1. revenue, common stock, retained earnings 2. dividends, expenses

revenue, common stock, retained earnings t account

debit (-); credit (+)

dividends, expenses t account

debit (+); credit (-)

moodle readings

do them

Accrued revenue

A revenue earned but not yet collected. This is an asset.

When putting depreciation on an adjusting entry

depreciation expense + accumulated depreciation (this is a contra account)

Salary on adjusting entries

Salary expense and salary payable

Income tax adjusting entries

Income tax (debit)and income tax payable (if increasing tax payable+ then credit)

Accumulated depreciation

This is an contra asset. So it’s an asset. So it’s a PERMANENT account

Do prepaid expenses go on closing entries?

No!!! They are an ASSET

Is unearned revenue on a closing statement

NO! This is a LIABILITY