chapter 1 & 2 Flashcards
the role of accounting in business
to provide information for managers to use in operating the business
internal users
- include managers and employees
- involved in managing and operating the business
the area of accounting that provides internal users with information is called
managerial accounting or management accounting
object of management accounting
to provide relevant and timely information for managers and employees decision-making needs
managerial accountants employed by a business are employed in
private accounting
external users
- accounting information include investors, creditors, customers, and the government
- not directly involved in managing and operating the business
the area of accounting that provides external users with information is called
financial accounting
objective of financial accounting
to provide relevant and timely information for the decision making needs of users outside the business
business entity concept
limits the economic data in an accounting system ti data related directly to the activities of the business
cost concept
amounts are initially recorded in the accounting records at their cost or purchase price
how do business transactions affect the accounting equation
an economic event or condition that directly changes an entity’s financial condition or its results of operations
the accounting equation
assets = liabilities + Owner’s Equity
assets - liabilities = Owner’s Equity
journal
the initial record in which the effects of a transaction are recorded
ledger
a group of accounts for a business
capital account
an account used for a proprietorship that represents the owner’s equity
drawing
the account used to record amounts withdrawn by an owner of a proprietorship
liabilities
the right of creditors that represents debts of the business
owner’s equity
the owner’s right to the assets of the business
expenses
assets used up or services consumed in the process of generating revenues
financial statements
financial reports that summarize the effects of events on a business
all financial statements are identified by
the name of the business, the title of the statement, and the date or period
data presented in a balance sheet are for
a specific date
data presented in the income statement, statement of owner’s equity, and statement of cash flows are
for a period of time
income statement reports
- the revenues and expenses for a period of time, based on the matching concept
- prepared first
statement of owner’s equity
- reports the changes in the owner’s equity for a period of time
- it is prepared after the income statements because of the net income or net loss for the period must be reported in this statement
balance sheet
a list of the assets, liabilities, and owner’s equity as of a specific date, usually at the close of the last day of a month or year
balance sheet
a list of the assets, liabilities, and owner’s equity as of a specific date, usually at the close of the last day of a month or year
account form
balance sheet
assets on the right and liabilities and owner’s equity on the left
assets | liabilities - owner’s equity
The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the
income statement
The financial statement that reports the assets, liabilities, and stockholders’ (owner’s) equity at a specific date is the
balance sheet
Under the accrual basis of accounting, revenues are reported in the accounting period when the
Service Or Goods Have Been Delivered
Revenues minus expenses equals
net income
Under the accrual basis of accounting, expenses are reported in the accounting period when the
Expense Matches The Revenues Or Is Used Up
Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to as
assets
Assets are usually reported on the balance sheet at which amount?
cost
Liabilities often have the word __________ in their account title.
payable
Unearned Revenues is what type of account?
liability
Accounting entries involve a minimum of how many accounts?
two
The listing of all of the accounts available for use in a company’s accounting system is known as the _____
chart of accounts
Which term is associated with “left” or “left-side”?
debit
Which term is associated with “left” or “left-side”?
debit
Which term is associated with “right” or “right-side”?
credit
When cash is received, the account Cash will be
debited
When a company pays a bill, the account Cash will be
credited
What will usually cause an asset account to increase?
debit
What will usually cause the liability account Accounts Payable to increase?
credit
Entries to expenses such as Rent Expense are usually
debit
Entries to revenues accounts such as Service Revenues are usually
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account?
Accounts Payable
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account? cash
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account? notes payable
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account? accounts receivable
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account? Mary smith, capital
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account? supplies
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account? supplies expense
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account? prepaid insurance
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account? service revenue
credit
To increase the balance in the following accounts, would you debit the account or would you credit the account? Mary smith, drawing
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account? equipment
debit
To increase the balance in the following accounts, would you debit the account or would you credit the account?unrendered revenue
credit
To decrease the balance in the following accounts, would you debit the account or would you credit the account? Accounts Payable Cash Land Notes Payable Accounts Receivable Mary Smith, Capita l Supplies Supplies Expense Prepaid Insurance Service Revenue Mary Smith, Drawing Equipment Unearned Revenue
debit credit credit debit credit debit credit credit credit debit credit credit debit
Generally when an expense is involved in a transaction, an expense will be
debit
Generally when revenues are involved in a transaction, a revenue account will be
credit
A contra-asset account such as Accumulated Depreciation will likely have which bal
credit
A contra-liability account such as Discount on Notes Payable will likely have which balance?
debit
