Exam 1 Flashcards
When do you record revenue
in the period they occur (realization princple)
When do you record expenses
in the period they occur (matching principle)
Accounting Equation
A+L=OE
General ledger
journal organized by account
General Journal
Journal organized by date
Net income
Revenue minus expenses
Income Statement
Shows revenues and expenses over a period of time
Balance Sheet
Shows a companies assets, liabilities, and owners equity
Purpose of trial balance
to find any math errors that may have happened (make sure credits and debits balance)
Cash basis accounting
Mark down transactions when cash changes hand
Accrual accounting
recognizing revenues when they are earned and expenses when they occur
4 types of adjusting entries
Accrued expenses
Accrued revenues
Deferred expenses
deferred revenues
Accrued expense
debit expense
credit payable
Accrued revenue
debit receivable
credit revenue
Assets to expenses
debit expense account
credit related asset account
liabilities to revenues
debit liability
credit revenue earned
why do you adjust entries
to convert cash transactions into the accrual accounting method
Materiality
all items likely to impact investing decisions must be recorded in financial statements with GAAP
FASB
Financial accounting standards board they establish and approve GAAP
GAAP
Generally accepted accounting principles
Depreciation
The cost of an asset over its useful life
Book value
net value of a firm’s assets
Purpose of financial statements
Shows a company’s financial position, operations, performance, and cash flow
