Basics Flashcards
What type of account is a Cash Account?
Cash is an Asset Account (current)
What type of account is an Accounts Receivable Account?
Accounts Receivable is an Asset Account (current)
What type of account is a Pre-Paid Account?
A pre-Paid account is an Asset Account (current)
What type of account is a Notes Receivable Account?
Notes Receivable is an Asset Account (current)
What type of Account is an Inventory Account?
Inventory is an Asset Account (current)
What type of account is a Supplies Account
Supplies is an Asset Account (current)
What is considered a current asset/liability?
A Current Liability is something that will be paid off or converted to cash within 12 months (including 12 months)
What type of account is an equipment account?
Equipment is an asset account (typically not current)
What type of account is a vehicle account?
Vehicles is an asset account (not current)
What type of account is machinery?
Machinery is an asset account (not current)
What type of account are Accounts Payable?
Accounts Payable are a Liability Account (current)
What type of account is accrued expenses?
Accrued expense accounts are liabilities (current)
What are accrued expenses?
Accrued expenses are when a companies obligation to pay for goods or services but has not yet received an invoice
What type of account are notes payable?
Notes payable are a liability (non-current)
What type of account is Contributed Capital?
Contributed Capital is an Equity Account
Do Credits or Debits increase Contributed Capital?
Credits Increase Contributed Capital
What type of account is a Dividend Account?
Dividends are an Equity Account
Do Debits or Credits increase Dividends?
Debits increase Dividends
What type of account are Retained Earnings?
Retained Earnings is an Equity Account
What type of account is a Revenue Account?
Revenue is an equity account
Do Debits or Credits increase Revenue?
With Revenue you always Credit.
What type of account is an expense account?
Expenses are an equity account
Do Credits or Debits increase expenses?
With Expenses, they’re always Debits
What Accounts do Debits Increase?
Dividends, Expenses, Assets are increased by debits
What accounts do Credits increase?
Liabilities, Equity, and Revenue are increased by credits
What does DEALER stand for?
Dividends, Expenses, Assets, Liabilities, Equity, Revenue
When is Revenue Recorded?
Revenue is Recorded when they are earned (regardless of when the cash is received).
When are Expenses Recorded?
Expenses are Recorded when they occur (regardless of when cash exchanges hands)
What is the Accounting Equation?
Assets = Liabilities + Equity
Giftcards are considered…
Giftcards are considered deferred revenue which is a liability
Define Accounting
Accounting is the action or process of keeping financial accounts
What is the main difference between financial accounting and managerial accounting
The main difference between financial accounting and managerial accounting is that financial accountants prepare external reports and managerial accountants prepare internal reports for business planning
What are the three types of business activities on a cash flow sheet?
The three types of business activities on a cash flow sheet are: Operating Activities (cash received from customers, paying employees. etc), Investing Activities(purchasing equipment), and Financing Activities(contributed capital, issuing shares, dividends)
What information is necessary for the Heading of each financial statement?
The company name, the type of financial statement, and the time period or date are required in the heading of each financial statement.
What is the purpose of the income statement?
The purpose of the income statement is to show the difference between revenues and expenses over a period of time
What is the purpose of the statement of retained earnings?
The statement of retained earnings shows the effect of net income or loss and dividends along affects the overall financial health of a business during a period of time
What is the purpose of the balance sheet?
The purpose of the balance sheet is to show a snapshot of a companies assets, liabilities, and shareholders equity at a point in time
What is the purpose of a cash flow statement?
The statement of cash flows reports operating, investing, and financing activities that increased and decreased in cash during a period of time
What are the three main components of a balance sheet?
Assets, Liabilities, and Shareholders Equity
What are the three main pieces of information reported in an income statement?
The three main pieces of information recorded in an income statement are Revenues, Expenses, and Net Income/Loss
What are the four main pieces of information reported in the statement of retained earnings?
The four main pieces of information recorded on a statement of retained earnings are: retained earnings from the previous term, net income/loss, dividends, and retained earnings
What is Cost Principle?
Cost Principle is the idea where assets are recorded at the value they were bought at.
Why are adjustments needed?
Adjusting entries are made at the end of every accounting period to report revenues and expenses in the proper period and assets and liabilities at appropriate amounts.Adjusting journal entries record the effects of each period’s adjustments in a debits-equal-credits format.
Adjustments involve both income statement and balance sheet accounts. They are needed to ensure that:•Revenues are recorded when the company has fulfilled an obligation (the revenue recognition principle),•Expenses are recorded in the same period as the revenues to which they relate (the expense recognition or “matching” principle),•Assets are reported at amounts representing the economic benefits that remain at the end of the current period and•Liabilities are reported at amounts owed at the end of the current period that will require a future sacrifice of resources.
Adjusting Entries never include ____
Cash
Adjusting entries always include one ____ account and one ____ account.
Balance Sheet Account, and Income Statement Account
How often are adjustment entries completed?
Adjusting entries are done at the end of periods because it is more efficient than trying to do them daily.etc
Supplies Adjustment Involves which Accounts?
Supplies used includes a credit to the Supplies Account and a debit to the Supplies Expense Account
A Prepaid rent adjustment involves which accounts when rent benefits have been used up?
Debit on the Rent Expense Account and a credit on the Prepaid Rent Account
Depreciation Adjustments affect which accounts?
A Debit on the Depreciation Expense Account, and a Credit on Accumulated Depreciation Account which is a Contra Asset Account
A Contra Account is always ____
The opposite of the account that it affects. (Debits / Credits)
What determines the depreciation amount?
The depreciation amount depends on the method used to calculate it.
Gift cards redeemed adjustments affect which accounts?
A Debit to Deferred Revenue and a Credit to Sales Revenue
Revenues not Earned but not Recorded Adjustment involves which accounts?
A Debit to Accounts Receivable and a Credit to Sales Revenue are needed.
Adjusting Entries of Wages Expense Incurred but not yet Recorded involves…
A Debit to the Wages Expense and a Credit to Wages Payable.
What does an income tax adjustment look like if incurred but not paid?
A Debit to the income tax expense and a credit to income tax payable
What does an adjustment look like for interest expense incurred but yet recorded?
A Debit to Interest Expense, and a Credit to Interest Payable
What adjustment is needed when dividends are declared?
A Debit to dividends declared and a credit to dividends payable
What are the temporary accounts?
Revenue, Expenses and Dividends are temporary accounts
What are the two closing entries needed?
- A Debit for the Revenues and Credits for Expenses and Retained Earnings, 2. A Debit for Retained Earnings and a Credit for Dividends Declared
What are the Three Types of Employee Fraud?
- Corruption
- Asset Misappropriation
- Financial Statement Fraud (Lowest Frequency, Causes Greatest Losses)
What is the definition of Fraud?
The Attempt to decieve other for personal gain
Why do people commit fraud?
What are internal controls?
Internal controls consist of the actions taken by people at every level of the organization to achieve its objectives
What is the formula for the cost of goods sold?
COGS = Starting Inventory + Purchases - Ending Inventory
What is a Periodic Inventory System?
A periodic inventory system is one that only updates inventory information at the end of an accounting cycle
What is a perpetual inventory system?
A perpetual inventory system is a system that updates inventory records every time inventory is bought, sold, or returned. It is better because it allows managers to have a better picture of how inventory is flowing through the business. They require two separate journal entries.
What does an Inventory Purchase for a business look like?
Debit on Inventory Account, and a Credit on Cash or Accounts Payable if purchased on account.
What do the entries look like when accounting for the transportation fee of inventory?
A Debit to the Inventory account and a Credit to the method of paying for the transportation.
All costs to get the inventory in a condition and location to sell should be placed in which account?
They should be placed in the Inventory Account
What do the entries look like when a business returns inventory to the supplier?
A credit to inventory the amount, and a debit to the account they used to purchase the inventory.
What do purchase an inventory purchase discount like this mean?
2/10 n/30
It means the purchaser gets a 2 percent discount if account is payed off within 10 days, 0 discount after that but balance is due within 30 days.
What do the entries look like when paying off an account used to purchase inventory with a discount?
It Contains a Credit to Cash to pay off the account, A Credit on the Inventory account for the discount amount and a Debit to accounts payable.
An inventory purchase discount affects which account?
It affects the inventory account.
What entries are required when inventory is sold to a consumer?
First Entry (For the amount of the Sale Price):
- A Debit to the Cash account
- A Credit to Sales Revenue
Second Entry (For the Amount the inventory Cost):
- A Debit to COGS
- A Credit to Inventory
What do the entries look like for Sales Returns and Allowances?
First Entry (Refund amount):
- Debit to Sales Returns and Allowances
- Credit to Cash
Second Entry (Orginal Cost of the Bike) :
- A Debit to Inventory
- A Credit to COGS
What do the entries look like for Sales on Account and Discounted Sales
First Entry (Sale Price):
- Debit to Accounts Receivable (or Cash)
- Credit to Sales Revenue
Second Entry (Cost of the Good):
- Debit to COGS
- Credit to Inventory
Entry, when a Customer Pays within a discount period, requires which entries?
A Debit to Cash with the amount paid after discount adjustment
A Debit to Sales Discounts
A Credit to Accounts Receivable
What are the three types of inventory that manufacturers hold?
- Raw Materials
- Work in Progress Inventory
- Finished Goods Inventory
What kind of Inventory does a Merchandiser hold?
It holds Merchandiser Inventory.
What is the Perpetual formula for the Cost of Goods Sold?
Beginning Inventory + Purchases - COGS = Ending Inventory
What are the two main methods of inventory costing?
- FIFO - First In First Out, Assumes first inventory purchase is the first sold
- Weighted Cost Average
When can Inventory fall below its original value?
- It can be replaced by identical goods at a lower cost.
- It has become outdated or damaged
What is the journal entry for an inventory write-down?
A Credit to Inventory for the write-down amount
A Debit to Shareholders Equity
