beginning accounting Flashcards
Cash Basis
An accounting system where items are recorded when actual money exchanges hands. It is based on the timing of when the money is moved from one party to another.
Cash Flow
A measure of how cash moves through an organisation
COGS: Cost of goods sold
it is the business’ cost of an item sold to the public. It could be from manufacturing or from buying something and retailing it to customers
Credit
Often thought of as a “good” thing. However, in double entry accounting it is just an entry on the right side of the books. Thus, it could be a negative number. It is important to remember that it is just an entry in a book, not actually a number that is positive or negative.
Debit
Often thought of as a “bad” item. However, in double entry accounting it is just an entry on the left side of the books. This is counter-intuitive to people and one reason for a misunderstanding of the term. It can be a positive number, but it is always on the left side of the books.
Depreciation
Recognising the use of a long-term asset, it represents the allocation of the cost of the asset over its useful life. These are assets which last for more than a year: vehicles, buildings, computers, etc.
Double Entry
An accounting system where every income or expense in a business is made using two entries on the books. One entry is a debit; the other is a credit. The system is designed to allow the books to balance out when both sides are totalled.
Equity
Leftover value when all liabilities of a company are subtracted from assets. This is the value of a business available to owners.
GAAP - Generally Accepted Accounting Principles
These are the rules or decisions for how to perform accounting developed by FASB.
General Accounting Equation
Assets = Liabilities + Owner’s Equity
Goodwill
This is an asset of an organisation. It represents the difference between an amount paid for an organisation and the market value of that organisation’s net assets.
“In the black”
This is a phrase to indicate that the business is making a profit. Accountants used black ink in the early 20th century to indicate that the number represented a positive or profitable number.
In the red
This is a phrase to indicate that the business is losing money. Accountants used red ink in the early 20th century to indicate that the number was a negative number.
In the red
This is a phrase to indicate that the business is losing money. Accountants used red ink in the early 20th century to indicate that the number was a negative number.
Income
Amount of money received for a service or sale. Try not to confuse income with a profit.
