Chapter 1 Intro. and Double Entry System Flashcards
The users of accounting info.
1) Managers
2) Owner
3) Bank
4) Prospective buyer/partners
5) Investors
6) Creditors
7) Government regulatory – the tax authority
Accounting Equation
Assets = Liabilities + Owner’s Equity
Assets
resources W monetary value. owned by the business, provided, or purchased to ensure enterprise can trade or provide service.
investment
Non-current assets
Assets that would benefit the business for a long time.
ex: land and building (premises), machinery, motor vehicles, fixtures and fitting, office equipment (computer, furniture, photostat machine)
current assets
Assets that quickly turned to cash, benefit a short period of time.
Ex: inventory, receivables (debtors/customers), prepaid expenses, accrued revenues, cash at bank, cash in hand
Cash
Cash in hand- money inform of notes, coins, cheques, etc. at business premises.
Cash at the bank- all the money has been transferred by the owner of the business to the business bank account.
Trade receivables
The amount owed by credit customers pays for goods or services after (sometime) when the goods are sold or given.
liabilities
Amounts owed by a business to other businesses, organizations, or individuals (suppliers)
Non-current liabilities
settled in long term, usually more than a year
Ex- long-term loan, notes payables, mortgage, hire purchase
current liabilities
settled in the near future, less than a year
Ex- payables (creditors/suppliers), short term loan, accrued expenses, unearned revenues
Accounting
the process of IDENTIFYING, MEASURING, and COMMUNICATING economics info to permit informed judgments and decisions by users of that information.
Capital
the investments made by the owner(s) of a business equates to the net value of a business
Owners Equity
OE = capital – drawings + profit - loss OE = capital – drawings + revenues – expenses OE = capital – drawing + [(sales – sales returns) – (opening inventory +purchases – purchases returns – closing inventory) + (other incomes – expenses)]
Drawings
the withdrawals of funds for private use (owner of the business)
double entry (ledger)
a system where each transaction is entered twice once on debit and once on credit.
trade discounts
discount given by seller to buyer for bulk purchases, is recorded at net of discount, hence no double entry is needed
cash discounts
discount given by seller to buyer for quick payments
which Accounts have debit entries for an increase
Assets Drawings Purchases +DR Returns inwards -CR Expenses
which Accounts that have credit entries for increase
Liabilities Capital Sales/revenues +CR Returns outwards -DR Other incomes
Goods were sold on credit to a customer, Abu Trading. Indicate the double-entry of this transaction.
Debit Abu Trading account and credit Sales account
Goods were sold by cash to customers, Abu Trading. Indicate the double-entry of this transaction.
Debit cash account and credit sales account
Which of the following groups of accounts have normal debit balances?
Assets, expenses, and drawings
Goods were bought on credit from supplier, Ali Trading. Indicate the double-entry of this transaction.
Debit purchases account and credit Ali Trading account
Goods were bought by cash from supplier, Ali Trading. Indicate the double-entry of this transaction.
Debit purchases account and credit cash account
Which of the following groups of accounts have normal credit balances?
Liabilities, revenues, and capital
