Accounting Test 1 Flashcards
Income statement
shows revenue and expenses (result will be net income or loss)
Statement of retained earnings
equity (looking at what happened to it over a period of time)
Balance sheet
assets, liabilities, and equity (snapshot of only one day)
statement of cash flows
cash in + out flows
financial statement
business documents that companies use to report results of their activities to various user groups
accounting cycle
the process by which a sompany’s financial statements are prepared
financial accounting
prepares info for decision makers outside the entity
proprietorship owners
one owner. these tend to be small retail stores or solo providers
partnership owners
two or more owners
LLC owners
members
corporation owners
stockholders- generally many owners
proprietorship liability
proprietor is personally liable
partnership liability
general partners are personally liable
LLP ownership
partners- two or more owners
LLP liability
partners are not personally liable
LLC liability
members are NOT personally liable
Corporation liability
Stockholders are NOT personally liable
Assets
economic resources expected to produce benefit in the future (is money now or will be in future)
Liabilities
“outsider claims”- things we owe to others
Owners equity
equity- insider claims
accounting equation
assets = liabilities + equity
common stock
corp issues to stockholders as evience of ownership
retained earnings
amount earned by income producting activities (revenue increases and expenses and dividends decrease it)
Statements of cash flows
reports cash reciepts and payments in operating, investing, and financing activities
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:
- debit revenue, credit retained earnings
- credit each expense, debit retained earnings
- credit dividends, debit retained earnings
assets t account
debit (+); credit (-)
liabilities t account
debit (-); credit (+)
the two groups for equity in t account
- revenue, common stock, retained earnings
- 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
