Exam 1, Ch 1-3 Flashcards
What are the (2) major fields of accounting?
- Financial accounting
2. Managerial accounting
What is the difference between Financial Accounting and Managerial Accounting?
Financial Accounting provides information to EXTERNAL decision makers
Managerial Accounting provides information to INTERNAL decision makers
What is the body of knowledge relied upon to govern accounting in the United States?
GAAP (Generally Accepted Accounting Principles)
What are (2) other - slightly smaller - areas of accounting?
Tax Accounting
Non-Profit / Governmental Accounting
What is the name of the organization responsible in the United States for maintaining GAAP?
Financial Accounting Standards Board (FASB)
What does CPA stand for?
Certified Public Accounting
What is a licensed professional accountant who serves the general public referred to as?
A CPA
How is a CPA certified?
Via a state specific examination - resulting in a state license
What is the major ability of a CPA?
To certify that the financial statements of a company are accurate or complete - i.e. Legal
Name (5) examples of ASSET accounts:
- Cash
- Accounts Receivable
- Notes Receivable
- Prepaid Expense
- Equipment, Office Supplies, or Furniture
Defn: A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
Notes Receivable
Defn: A payment of an expense in advance
Prepaid Expense
Defn: A type of asset account that includes all the business’s money. Includes bank balances, bills, coins, and checks
Cash
Defn: A type of asset account that is made up of customers promises to pay in the future for services or goods sold.
Described as “On Account”
Accounts Receivable
Name (4) types of LIABILITY accounts:
- Accounts Payable
- Notes Payable
- Accrued Liability
- Unearned Revenue
Defn: A type of Liability account that is made up of promises made by a business to pay a debt in the future.
Arises from credit purchases
Accounts Payable
Defn: A type of Liability account composed of written promises made by a business to pay a debt, usually involving interest, in the future.
These promises are between the business and a bank.
Notes Payable
Defn: A type of Liability account made up of an amount owed by a business but not yet payed
Accrued Liability
Defn: A type of Liability account that is created when a business collects cash from customers in advance of providing services or delivering goods
Unearned Revenue
Name (4) types of EQUITY accounts:
- Owner, Capital
- Owner, Withdrawal
- Revenues
- Expenses
Defn: Type of Equity account that represents the net contributions of the owner in the business.
Increases Equity
Owner, Capital
Defn: Type of Equity account made up of distributions of cash or other assets to the owner
Decreases equity
Owner, Withdrawal
Defn: Type of Equity account composed of earnings that result from delivering goods or services to customers.
Increase equity
Revenues
Defn: type of Equity account comprised of the cost of selling goods or services.
Decreases equity
Expenses
Name (2) types of Revenue accounts:
- Service Revenue
2. Rent Revenue
Name (3) types of Expense accounts:
- Rent Expense
- Salaries Expense
- Utilities Expense
Defn: A list of all of a company’s accounts with their account numbers
Chart of Accounts
Defn: The record holding all the accounts of a business, the changes in those account, and their balances
Ledger
Defn: The balance that appears on the increase side of an account
Normal Balance
Defn: A record of transactions in date order
Journal
Defn: Transferring data from the journal to the ledger
Posting
7-Steps of the Accounting Cycle
- Journalization
- Posting to the ledger
- Prepare an unadjusted trial balance
- Prepare Financial Statements
- Journalization and Posting of Adjusting Journal Entries
- Journalization and Posting of Closing Journal Entries
- Prepare a Post Closing Trial Balance
Defn: A list of all ledger accounts with their balances at a point in time
Trial Balance
What is the Accounting Equation?
Assets = Liabilities + Equity
Defn: shows the proportion of assets financed with debt.
Total liabilities / Total assets
Debt ratio
Defn: accounting method that records revenues only when cash is received and expenses only when cash is paid
Cash Basis Accounting
Defn: Accounting method that records revenues when earned and expenses when incurred
Accrual Basis Accounting
Defn: An accounting concept that requires companies to record revenue when it has been earned and determines the amount of revenue to record
Revenue Recognition Principle
Defn: An accounting concept that guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period.
Matching Principle
Defn: An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur
Adjusting Journal Entry
Defn: The sum of all the depreciation expense recorded to date for a depreciable asset
Accumulated Depreciation
Defn: An account that is paired with, and is listed immediately after, its related account in the chart of accounts and associated financial statement and whose normal balance is the opposite of the normal balance of the related account.
Contra Account
Defn: An expense that the business has incurred but has not yet paid
Accrued Expense
Defn: A liability created when a business collects cash from customers in advance of completing a service or delivering a product
Unearned Revenue
Defn: A revenue that has been earned but for which the cash has not yet been collected
Accrued Revenue
Defn: A list of all the accounts with their adjusted balance
Adjusted Trial Balance
- To ensure that total debits equal total credits
- Ensure that all revenues and expenses for the accounting period examined are recorded
- Update the balance sheet accounts so all accounts are properly valued
Are all purposes of what?
A trial balance
What is a Trial Balance used for?
To prepare financial statements
List the (5) types of transactions that Adjusted Journal Entries are made for:
- Accrued Revenue
- Accrued Expense
- Unearned Revenue
- PrePaid Expense
- Estimated Items (Depreciation)