Current Accounting Terms Flashcards
Accounts payable
Money a business owes to others for goods or services
Accounts receivable
Money that is owed to a business for providing a good or
service
What is an Accrual Entry?
An entry that records a future revenue or expense in the
current period, even if money hasn’t been paid or
received yet.
Accrual accounting definition.
Revenues and expenses are reported or recognized on
financial reports when they are earned or incurred, rather
than when the payment is made or received.
Adjusted trial balance lists what___ after adjusting entries have been prepared?
Ending balances in all accounts after
adjusting entries have been prepared
Adjusting entries can create new entries to record what?
Creating new entries to record depreciation and accrual
adjustments.
Accounting Equation
Assets = Liabilities + Equity
Assets
Anything the business owns of value or a resource of
value that has the potential to be transformed into cash
Balance sheet; what does does it report the the business?
A financial statement that reports a
business’s assets, liabilities, and equity at a specific point
in time.
What does a Bookkeeper do?
Bookkeepers document transactions, manage accounts,
and record financial data
What accounting method does this:
Revenues and expenses are reported or recognized on
financial reports, when the payment is received or made,
rather than when work is performed.
Cash-basis accounting.
Chart of accounts
Lists all of the accounts and sub-accounts used to
categorize transactions
What represents a decrease in assets, or expenses, or an increase in liabilities, owner’s equity, or revenue. Credit or Debit?
Credit
Current liabilities
Debt obligations that come due within one year
What represents an increase in assets or expenses or a decrease in
liabilities, owner’s equity, or revenue. Debit or Credit?
Debits
What is the entry that records a current payment or expense at a
later period when the money has actually been earned or
incurred called?
Deferral
Depreciation
Spreading out the cost of an item over the expected life
of the item
What 2 things does Double-entry Accounting use for every transaction?
A method of bookkeeping that uses at least 2 entries, a
debit and a credit, for every transaction.
Equity
Owner’s stake in the business, how much they have
invested or withdrawn
Financial Statement: Basic definition
A set of reports that show
how a business is performing financially and all business
activities related to running the business Financial
statements.
What does a General Ledger (GL) provide for the business?
For how long?
And else does it contain to help a business prepare financial statements?
Provides a record of each financial transaction that
takes place during the life of an operating business
and contains all accounts needed to prepare financial
statements
Income statement / Profit & Loss Statement.
What does it show the business and for what time period?
Income statement shows the business’s revenues and
expenses during a particular period
Inventory
Inventory, or stock, is the raw material a business uses in
production or finished goods ready to sell
Invoice (sales Invoice)
An itemized bill of goods sold or services provided.
Liability
What the business owes to others
Matching principle
Revenues and their associated expenses should be
recognized in the same reporting period
Payroll records
Employee timecards or other internal business
documents that record an employee’s wages and number
of working hours for a specific period
Periodicity Assumption
A business can report its financial results within specific
time periods This usually involves reporting results
and cash flows regularly, such as monthly, quarterly, or
annually
Reconciliation
The process of comparing transactions and activity to
supporting documentation
Revenue
Income earned through business, gross proceeds or
sales
T Account/T Chart
A chart in which debits are on the left and credits are
reported on the right.
What side are Credits on in the T Account?
Right
What side are Debits on in the T Account?
Left
Transaction Journal
Where the details of an individual event (transaction) is
shown, making it easier than searching through General
Ledger
Transactional Reconciliation
Comparing the books line by line to another source
document to make sure that every transaction syncs up
and is accounted for.
Transactions
An individual event (such as an expense, revenue, etc)
Unadjusted Trial Balance
(a trial balance; A draft)
A form or statement that lists the titles and balances of all
ledger accounts at a given date before adjusting entries
are made.
The essence of the accounting equation
The left side perfectly balances the right side.
A business’s assets can never equal more or less than the sum of its liabilities and equity.
* If the right side goes up, so does the left side.
* If the right side goes down, so does the left side.
Gross proceeds from sales, whether that’s products, services, rentals, or anything else that brings money into the business is called what?
Revenue
Revenue- What does it do for the business?
Earn or Cost?
Earns
Expenses
Represent the costs of doing business, such as labor costs like salaries and employee benefits, operating costs like utilities, rent and insurance, and other essential expenses like taxes and advertising, or anything else that keeps their business moving.
Income Statement Equation
Income Statement = Revenue - Expenses
A document that summarizes a client’s financial performance through the calculation of revenue minus expenses.
Also What is the Equation?
Income Statement
Income Statement = Revenue - Expenses
Debits
Represent an increase in assets or expenses, or a decrease in liabilities, owner’s equity, or revenue.
Credits
Represent a decrease in assets, or expenses, or an increase in liabilities, owner’s equity, or revenue.
The cardinal rule of bookkeeping:
Debits and Credits need to be equal
“The Accounting Principle”
Provides us with what as we are doing our job?
Provide a standardized framework that guides financial information recording, analysis, and communication.
Accounting Principles - The Assumptions (8)
Economic entity assumption
Reliability assumption
Full disclosure principle
Conservatism assumption
Materiality principle
Consistency principle
Monetary unit assumption
Going concern assumption
Economic entity assumption
This assumption means that the business is its own separate entity, distinct from its owners. It reminds us that we must keep the business’s financial activities separate from any personal finances.
Reliability assumption
This principle ensures that the information you record in your client’s financial documents is verifiable and backed up by proper documentation. If your client cannot provide an invoice, receipt, or bank statement to support a transaction, it is not a reliable transaction and cannot be recorded.
Full disclosure principle
This principle states that any information lenders or investors might need to make informed decisions should be disclosed in the financial statements or accompanying notes.
When you are not sure if or how to record an item, this principle guides us to err on the side of caution. What is that Principle?
Conservatism assumption
- It means we choose options that show less income or asset benefit.
- Potential losses can be recorded, while potential gains cannot.
Materiality principle
This principle allows you to focus on what really matters. It states that if an accounting standard has such a small impact on the financial statements that it would not mislead anyone, you can ignore it.
What accounting Principle do you use with caution?
Materiality principle
Determining materiality can be highly subjective. When in doubt, seek advice from colleagues or an accountant who can provide valuable insights.
Once a business adopts a specific accounting method for recording certain items, it commits to entering all similar items in the same way in the future.
What Principle is this?
Consistency principle
By adhering to the consistency principle, you maintain continuity and comparability in your client’s financial records. You would only change an accounting method if the new version improves the accuracy of reporting.
This assumption brings simplicity and uniformity to your accounting practices.
It states that you use one currency throughout all your accounting activities.
What Principle is this?
Monetary unit assumption
You do not need to worry about inflation or changes in currency values when recording your client’s finances.
Going concern assumption
This principle assures us that the business is stable enough to operate and meet its obligations for the foreseeable future. The business acts and makes decisions with the intention of continuing to run the business rather than liquidating it.
What might a business call an invoice received from a vendor or supplier?
Purchase Invoice
Purchase Invoice
Usually an invoice (itemized bill of goods sold or services provided) can carry terms to record credit sales If a business purchase supplies
or raw materials from another business.
Financial statements are a set of reports?
What are those reports called?
-Balance sheet (which shows assets, liabilities, and equity).
-Income statement (provides
revenue and expenses and net income for a set period).
-Cash flow statement (shows how well a business
generates revenue to pay operating expenses, fund
investments and pay any outstanding debt)
What do Cash flow statements show a business?
Shows how well a business
generates revenue to pay operating expenses, fund
investments and pay any outstanding debt.
What shows Revenue and Expenses and net income for a set period?
Income Statements
What are the 4 main types of financial Statements?
- The income statement
- The balance sheet
- The statement of equity
- And the statement of cash flows
The Balance Sheet presents a snapshot of what for the business?
A snapshot of the business assets, liabilities, and equity at a particular moment.
What does the Statement of Equity show?
Tracks the changes in the business equity, starting from the opening balance to the ending balance for the period.
The Statement of Cash Flow is important because it provides what for the business?
Information about the sources and uses of cash by the business, offering insights into cash inflows and outflows..
The accounting cycle is a process that businesses go through regularly to keep their financial records in order.
It’s up to the business to decide when and how often. Choosing a reporting period depends on the client and their needs.
n/a
What is the basis of Accrual Accounting? (The principal that helps you figure out something)
The revenue recognition principle. It helps you figure out when to count revenue.
The key idea is that revenue gets recognized when the work is finished and delivered, not when the payment arrives.
Accrual Accounting question.
If the work isn’t completed and the money arrives early, how is that money to be treated?
It is money owed rather than revenue until the work is finished, or the goods are delivered.
What Principal is a crucial part of accrual accounting you have to remember?
Matching principle.
You make sure to record expenses in the same period as the revenues they helped generate.
Even if the business is waiting for payment, as long as they’ve completed the work or provided the goods, they can record that revenue in the books.
What Principle is this?
revenue recognition principle
The unadjusted trial balance provides what initially?
Overview of financial information and helps catch any mistakes made earlier in the accounting cycle.
The unadjusted trial balance is considered accurate if what happens?
If the total debit account balances equal total credit account balances.
Step 5: Final Review for Accuracy:
What does it show?
What does it provide?
This provides a summary of the ending balances in the accounts.
It shows that all the changes and corrections have been accurately recorded and the accounts are in balance.
The Adjusted Trial Balance acts as a built-in check for what?
If the trial balance debits and credits do not balance, it’s a sign that there are errors that need to be found and fixed.
