Bookkeeping Lec 2 Flashcards
is a business activity concerned with recording and classifying financial data related to business operation in order of its occurrence.
Bookkeeping
Uses only one entry in every transaction, similar to a check register.
Does not track assets and liabilities from transaction.
Applicable only to very small businesses with simple operations and low volume of activity.
Single-entry bookkeeping
Used by most businesses.
Discussed in detail in the succeeding slides.
Double-entry bookkeeping
Double-entry bookkeeping developed by?
Luca Pacioli in 1494
Based on the principle of the duality of business transactions and events, i.e., every transaction has a double (or dual) effect on the position of a business as recorded in the accounts.
Double entry bookkeeping
Step 2-4?
Bookkeeping phase
step 5-7?
Reporting phase
step 8-10
wrap up phase
is defined as a summarized record of economic transactions related to the elements of the financial statement
account
Accounts related to the entity’s assets, liabilities and owner’s equity
Balances are carried-over from one accounting period to another.
Also known as permanent accounts or balance sheet accounts.
Real account
Accounts related to the entity’s revenues and expenses.
Balances are transferred to a real account at the end of an accounting period.
Also known as temporary accounts or income statement accounts.
Nominal Account
Accounts that reduced the value of a related account.
The normal balance of these account will be the opposite of the related account (i.e., if asset account have normal debit balance, contra-asset accounts will have a normal credit balance).
Can either be a real account or nominal.
Contra Account
“debere” “what we will receive”
debit
“credere” “what we will have to pay”
credit
is a listing of the names of the accounts that a company has identified and made available for recording transactions in its books of accounts.
chart of accounts
Paper bill, check and any other medium that will be accepted in the exchange of goods or service.
cash
Amount due to be collected by the entity from it s customer for service rendered or goods sold on credit.
accounts receivable
A written pledge that a debtor will be pay the entity a fixed amount on a certain date.
notes receivable
A contra-asset account representing a portion of the entity’s receivable that is assessed to be uncollectible.
allowance for doubtful accounts
Goods that are held for sale in the ordinary course of business or used in production of goods and services.
inventories
goods bought by trading firms for resale at a mark-up.
merchandise inventory
goods to be used in making a finished goods by a manufacturing firm.
raw materials inventory
inventories in the manufacturing line bur not yet completed.
work-in-process inventory
inventories completed from the manufacturing process for sales.
finished goods inventory
inventory of other supplies used in the production goods and services.
production supplies
Represents cash paid by the entity to its supplier of goods or service that is yet to incurred used or consumed by the entity and , hence, yet not incurred by the entity.
prepaid expenses
Tangible properties that are held by an enterprise for use in the production or supply of goods or services, rental to other or use for administrative purposes that is expected to be useful within for more than one year. Includes items such as land, building, machinery and equipment, furniture and fixture and vehicles.
property, plant and equipment
A contra-asset account related to an item of fixed asset and contains the accumulated sum of periodic depreciation charges. The balance of this account is deducted from the cost of the related asset (e.g. building, equipment, vehicle) to obtain its net book value or carrying value.
accumulated depreciation
Amount due to be paid by the entity to its supplier for services rendered or good received on credit.
accounts payable
Amount owed to other for unpaid expense where the supplier’s billing or other supporting document are still not yet received by the entity.
accrued expenses payable
Represents cash received by the entity from its customer prior to rendering of service or delivery of goods, hence, still not earned by the entity.
unearned revenues
Represents cash obtained through debt financing from a bank or other financial institution. Loans payable can also be called as:
Short-term loan payable, if it is due to be paid within one year, or
Long-term loan payable, if it is due to be paid for a period exceeding one year.
loans payable
Pertains to the owner’s invested capital and accumulated profit (loss), net of withdrawals closed in this account.
owner, capital
Contra-equity account; Temporary account used to record withdrawals of business asset by the owner for personal purposes.
owner, withdrawals
Revenue earned by performing services for a customer or client; for example, accounting services by a CPA firm, legal services by a law firm
service revenue
Revenues earned as a result of sale of goods, for example, sale of building materials by a construction supply firm
sales
Revenue earned that is incidental to the operations of the business, for example, interest income earned on cash in bank
other revenues/ income
Revenue earned from activities outside of the normal course of business, for example, gain on sale of fixed assets sold for more than its carrying value.
gains
Expenditure spent by the entity that is directly related in earning service revenues; for example, salaries of CPAs hired by an accounting firm or the fuel consumed and salary of the drivers of a bus company.
direct cost
Cost assigned to goods sold by a trader or manufacturer. This account is used in the perpetual inventory system only.
cost of sales
Accumulated cost of goods purchased by a trading firm from suppliers. This account is used in the periodic inventory system only.
purchases
Payments made as a result of an employer-employee relationship between the entity and its employees.
salaries and wage expense
Expenses related to use of telecommunication facilities, consumption of electricity or water.
utilities expense
Expense for leasing office space, equipment or other assets.
rent expense
Expense of using office supplies in the conduct of routing business activities
office supplies expense
Payment of premium on insurance coverage of the entity’s assets.
insurance expense
Portion of a tangible asset allocated or charged as expense during an accounting period.
depreciation expense
Amount of receivable estimated to be doubtful of collection and charge as expense during the period.
bad debts expense
Expense related to the use of borrowed funds.
interest expense
Outflow of economic resource that is outside of the normal of course business.
losses
