C5 Booking It: The Process Behind Financial Accounting Flashcards
accounting paraprofesional
this means that a person may not have any specific education, experience or licensing related to accounting.
trun·cate
verb
past tense: truncated; past participle: truncated
shorten (something) by cutting off the top or the end.
synonyms: shorten, cut, cut, abbreviate,
Net assets = Owners’ Equity is a truncated version of the fundamental accounting equation because
this version of the equation just moves the liabilities to the other side of the equal sign; net assets are all assets minus all liabilities.
Net assets = Owners’ Equity
Net assets - Liabilities = Owners Equity
Net assets = Liabilities + Owners Equity
the term net worth cannot be used interchangably with owners’ equity because…?
GAAP does not allow accountants to restate assets to their actual value (fair market value), which would be required to calculate a company’s net worth (not book value).
ac·count
a record or statement of financial expenditure and receipts relating to a particular period or purpose
chart of accounts
is a created list of the accounts (basically a map for the codes on the GL) used by an organization to define each class of items for which money or the equivalent is spent or received.
It is not a financial report.
Chart of Accounts
Number Sequence Account Type ?
1000 to 1999
2000 to 2999
3000 to 3999
4000 to 4999
5000 to 5999
6000 to 7999
8000 to 9999
Number Sequence Account Type ?
1000 to 1999 Assets
2000 to 2999 Liabilities
3000 to 3999 Equity
4000 to 4999 Income
5000 to 5999 Cost of goods sold expenses
6000 to 7999 Operating G&A
8000 to 9999 Non-business related items of income and expense
Assets and expenses are always ____ to add to them and _____ to subtract from them.
Assets and expenses are always debited to add to them and credited to subtract from them.
Liability, equity and revenue accounts are always ____ to add to them and _____ to subtract from them.
Liability, revenue and equity accounts are always credited to add to them and debited to subtract from them.
Before you enter an event into a business accounting system you have to consider the the transaction methodology, a five step process for deciding the correctness of whatever entry you are preparing. What are the 5 steps?
- Whats going on, the event: did the company buy a piece of equipment or sell some product?
- Which accounts does this event affect?
- How are the accounts affected (debit or credit)?
- Do all debits for an entry equal the credits for the same entry?
- Does the entry make sense? do the actions you take match the circumstances of the business event? (although the net affect on the books is the same you cannot credit and expense to record revenue)
journal
is a record of financial transactions in order by date (the day to day recording of events).
Traditionally, a journal has been defined as the book of original entry.
cash
in accounting, cash is a generic term for any payment method that is assumed to be automatic
2 types of cash journals?
- Cash receipts journal
- Cash disburements journal
2 most common accrual journals
- Sales Journal
- Purchase Journal
3 most common special journals
- Payroll journal
- Purchases return and allowance journal
- Sales returns and allowance journal
2 general journals
- Adjusting journal entries
- Closing journal entries
sales journal records all sales that a business makes to a customer on account, which means…?
no money changes hands between the company and its customer at the time of sale
a sales journal affects two different accounts…?
accounts receivable and sales (revenue), both accounts are always affected by the same dollar amount
products returned by customers after sales are done are not recorded in the sales journal but where?
general journal
purchase journals are used record transactions when?
anytime a business buys using credit (on account)
adjusting journal entries: one key reason you would adjust journal entries is to..?
make sure the accounting books are recording using the accrual method (reclassifying entries to actual).
closing journal entries
Are to zero out all temporary accounts, which reflect all the revenue and expenses for a certain time period. You then transfer the net amounts to the balance sheet. You take this to set the income statements to zero so you know exactly how much revenue and expense are booked during a certain time period.
ledger
principal book or computer file for recording and totaling economic transactions by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.
a ledger records applicable transactions taking place in a company during a…?
particular accounting cycle
the ledger fuctions
ledger serves as a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers. A company’s financial statements are generated from summary totals in the ledgers.
The chart of accounts serves as a map for the ledger accounts
general ledger fuction
lists all the transactions taking place in all the accounts during the specified accounting period
sub·sid·i·ar·y
adjective
- less important than but related or supplementary to something.
synonyms: subordinate, secondary, ancillary,
the payroll ledger and the accounts receivable ledger would be considered _____ ledgers
subsidiary
when you post to the ledgers you simply take the accounts and the numbers from the transactions you enter into the journals and record them in the correct ledger. If a subsidiary ledger (AR) is the first point of recording the transaction the amount flows through to the _________ combining with all other customers owing the business money to show a grand total of the accounts receivable.
when you post to the ledgers you simply take the accounts and the numbers from the transactions you enter into the journals and record them in the correct ledger. If a subsidiary ledger (AR) is the first point of recording the transaction the amount flows through to the general ledger, combining with all other customers owing the business money to show a grand total of the accounts receivable.
Trial balance: is a listing of all the accounts in the general ledger and the balance they hold as of the date of the report. The purpose of the trial balance is…?
to make sure all the debits equal credits
Accountants also use it as a front-line tool to review the accuracy of the financial statements
