Chapter 2 - The Fundamental Accounting Equation Flashcards
What is a liability and how is it ordered?
Debts that the business owes outsiders
It is ordered in order of maturity date
What are assets and what are they ordered in?
What the business owns that has dollar value
It’s ordered in order of liquidity
What is Owner’s Equity?
What the owner owns - his investment in business and business profits
What is the basic accounting equation?
Assets = Liabilities + Owner’s Equity
What are the three line headings in a balance sheet in order?
Who? - name of business
What? - name of financial statement
When?- specific date financial position is determined
What is accounts receivable?
Money customers owe to the business for a sale which was bought on credit
What are accounts payable?
Money owed to suppliers for purchasing items on credit
What are the basic bookkeeping practices?
- Avoid using abbreviations
- No commas or decimal points
- Single line drawn above a total
- Double underline drawn below a total
- Neatness
What is GAAP
General Accepted Accounting Principles
What is IFRS
International Financial Reporting Standards
What is ASPE
Accounting Standards for Private Enterprises
What is the business entity concept?
The accounting for a business organization is kept separate from personal affairs
What is the continuing concern concept
Assume the business will continue to operate normally unless it is know that it will not
What is the cost principle (under ASPE)
Traditional accounting practice where the assists are listed at their cost price rather than their market value
What is the revaluation model (under IFRS)
Allows accountants to change the value of an asset based on market conditions
