Bookkeeping Basics Flashcards
Bookkeeping
The process of tracking and recording the financial transactions of a business.
Accounts Payable
Money a business owes others for goods or services.
Accounts Receivable
Money that is owed to a business for providing a good or service.
General Bookkeeping Responsibilities
Record financial transactions
Reconcile bank accounts
Managing accounts receivable and accounts payable
Work with tax preparers and assist with tax compliance
Generate financial statements.
Accounting Equation
Assets = Liabilities + Equity
Assets
Anything the business owns of value or a resource of value, like cash, equipment, or buildings that has the potential to be transformed into cash.
Liabilities
What the business owes to others, such as, loans or unpaid bills.
Equity
Owner’s stake in the business, how they have invested or withdrawn.
Balance Sheet
A financial statement that reports a business’s assets, liabilities, and equity at a specific point in time.
Revenue
Income earned through business, gross proceeds or sales.
Expenses
Represent the cost of doing business, such as labor costs like salaries and employee benefits, operating costs like utilities, rent and insurance, and others like taxes and advertising, or anything that keeps the business moving.
Debits
Represent an increase in assets or expenses, or a decrease in liabilities, owner’s equity or revenue.
(Debits and Credits must be equal)
Credits
Represent a decrease in assets, or expenses, or an increase in liabilities, owner’s equity, or revenue.
(Debits and Credits must be equal)
What are the 6 steps of the accounting cycle?
Step 1: Collect and analyze
Step 2: Record and post transactions
Step 3: Prepare unadjusted trial balance
Step 4: Prepare adjusting entries
Step 5: Prepare adjusted trial balance
Step 6: Prepare financial statements
Periodicity Assumption
A business can report its financial results within specific time periods. I.E. monthly, quarterly, or annually.
