Chapter 1 Flashcards
(26 cards)
What is bookkeeping?
Keeping track of money-related activities for an individual or a business
What kinds of money related activities does bookkeeping cover?
- cash received
- cash paid out
- sales
- purchases
- other activities
What is personal bookkeeping?
– Cash received
– Cash paid out
– Things owned
– Debts owed
What does bookkeeping for business entail?
– Cash received – Cash paid out – Sales – Purchases – Things owned – Debts owed
What is a Balance Sheet?
shows you what you own (assets) and the debts you own (liabilities)
What is owners equity?
the difference between assets and liabilities
What is an Income Statement?
Shows the revenue (income) earned and the operating costs incurred.
What is net income?
The difference between revenue and costs
What are the three forms of business organization?
– Proprietorship
– Partnership
– Corporation
What is a Proprietorship?
– Business with only one owner
– Owner is manager, makes all business decisions, responsible for all liabilities
What is a Partnership?
– Business owned by two or more persons (called partners)
– Partners share management and decision-making
– Each partner responsible for debts of business
What is a Corporation?
– Business operates under government charter
– Owners called shareholders or stockholders
What are the five classes every business divides it’s accounts into?
– Assets – Liabilities – Owners Equity – Revenues – Expenses
What are assets?
– Things of value, owned by the business
– Ex. cash, buildings, equipment, merchandise for sale (inventory)
What are liabilities?
– Debts owing to others (accounts payable)
– Ex. credit cards, bank loans, mortgages
What is Owners Equity?
Value of assets that remain after all debts have been paid off
What are Revenues?
– Earnings from sales of goods and/or services to customers
– A business can have more than one kind of revenue
What are Expenses?
– Costs of operating business
– Ex. rent, salaries, electricity, water, advertising, etc.
What is the difference between an Asset vs. an Expense?
Assets – contribute to the current operating year and to the following year (or years)
Expenses - Contribute only to the current operating year
What are the practices and procedures (rules) accountants follow in how they record accounting activities and report accounting information?
Generally Accepted Accounting Principles (“GAAP”)
What do the Generally Accepted Accounting Principles (GAAP) ensure?
That all accounting information is fair, free from bias, and reliable
What are the three concepts of Generally Accepted Accounting Principles?
– Business Entity Concept – Continuing-Concern Concept – Conservativism Principal – Objectivity Principal – Time-Period Concept – Recognition Principal
What is Business Entity Concept?
Accounting for the business must be kept separate from the affairs of the owner
What is Continuing Concern-Concept?
Assumes the business will continue operations without interruption (carry over debts, expenses, etc.)
