Chapter 1 Flashcards
who does accounting provide information to
managers, owners, investors, government agencies
what does accounting do
provide financial information for decision makers
what does the accounting process do
analyze, record, classify, summarize, report, interpret, communicate
what is sole proprietorship
one owner makes all the decisions for the business
what’s a disadvantage of sole proprietorship
if sued, they can take personal stuff
what is a partnership
at least 2 owners share the decision making & risk of business
what is a corporation
owned by stockholders
what is a liability corporation (LLC)
owned by a few stockholders, liable only to the extent of their investment
what is merchandising
make their own products/sell products made by another supplier
what is manufacturing
companies that make their own products
what is GAAP (generally accepted accounting principles)
procedures & guidelines that must be followed during the accounting process
what is bookkeeping
recording function of the accounting process
what is the accounting equation
assets = liabilities + owner’s equity
what are assets
properties of value OWNED by a business (cash, supplies, office equipment)
what is a liability
future obligation (rights of creditors)
what is accounts payable
promise to pay the creditor (liability)
what are equities
total claims (of creditors & owners) against the assets
what are creditors
companies that are owed money & have a claim to assets
what is capital
owner’s investment in a company
what is a shift in assets
make-up of the assets has changed, but the total remains the same
what is revenue
amounts earned by performing services, increases owner’s equity (will always be cash/accounts receivable)
when do assets increase
cash (if client pays right away) or accounts receivable
what is accounts receivable
client promises to pay in the future (assets)
what are expenses
cost incurred in efforts to create revenue, decreases owners equity, paid in cash/can be charged
what is net income/net loss
revenues-expenses
what is net income (increases equity)
revenues>expenses
what is net loss (decreases equity)
revenues<expenses
what are withdrawals
cash/other assets removed from the business to pay personal expenses, decreases owner’s equity, not an expense/related to business
what does owner’s equity equal
beginning capital & additional investment + net income (revenue-expenses) - withdrawals
what is the order of preparation
- income statement
- statement of owner’s equity (uses net income/loss from income statement)
- balance sheet (uses balance in capital from owner’s equity)
what is the heading of an income statement
company name, income statement, for month ended…
what is included in an income statement
revenue:
consulting fees
operating expenses:
expenses
total operating expenses
net income (revenue-expenses)
what is the heading of a statement of owner’s equity
company name, statement of owner’s equity, for month ended…
what is included in a statement of owner’s equity
capital (beginning of month)
net income for month (from income statement)
less: withdrawals for month
increase in capital (net income-withdrawals)
capital at end of month (capital+increase)
what is the heading of a balance sheet
company name, balance sheet, month & year
what is included on the left side of a balance sheet
(assets)
cash, accounts receivable, equipment, supplies, total assets
what is included on the right side of a balance sheet
liabilities:
accounts payable
owner’s equity:
capital
total liabilities & owner’s equity (should equal total assets)
