Exam 1: Module 1-2 Flashcards
the process of identifying and recording financial transactions and reporting the results of those transactions to interested users
accounting
the process of recording financial transactions
bookkeeping
higher-level managers of a company that are interested in the results of transactions to interested users
internal users
preparing and supplying internal users with the financial information they need
managerial accounting
banks and lending institutions, other creditors, taxing agencies, and investors
external users
financial information needs of external users
financial accounting
How many basic financial statements are there?
4
What are the four basic financial statements?
income statement, statement of owner equity, balance sheet, and statement of cash flows
a collection of commonly followed accounting rules and standards for financial reporting whose primary purpose is to ensure that financial reporting is transparent and consistent from one organization to another
generally accepted accounting principles (GAAP)
revenue is not recorded until cash is received, and expenses are not recorded until cash is paid
cash basis accounting
revenue should be recorded when it is earned and expenses should be recognized when they are incurred, regardless of when cash is received or paid
accural basis of accounting
How many basic account types are there?
5
What are the five basic account types?
Assets, Liabilities, Owners Equity, Revenue, and Expense (ALORE)
an economic resource that a company owns or controls with the expectation that it will provide a future benefit (anything we own or have legal right to use)
asset
What are types of assets?
cash, accounts receivable, inventory, prepaid assets, & land, buildings, and equipment
a future sacrifice of economic resources that a business is obligated to make to its creditors as a result of past transactions (anything we owe)
liabilities
a person or company to whom money is owed
creditor
What are types of liabilities?
accounts payable, notes payable, unearned revenue
the value of the owners investment in the business. it can be defined as he owners rights to the assets of the business
owners equity
What are types of owners equity?
owners capital and owners withdraw
a large sum of money which an owner uses to start a business
capital
the amount earned by a business from selling goods or providing services as part of its normal business activities
revenue
What are types of revenue?
Sales, service, interest, and rent
the costs incurred by a business to generate revenue from its normal business activities
expenses
What are types of expenses?
advertising, utilities, interest, rent, supplies, salaries and wages, and depreciation
shows the revenues and expenses of a business for a specific period of time
income statement
a bookkeeping worksheet in which the balance of each account is compiled into debit and credit account column totals that are equal
trial balance
the measure of the profitability of a business
net income
How do you get net income?
revenue - expenses = net income
shows the changes in the capital account due to contributions, withdraws, and net income or net loss
statement of owners equity
an accounting principal that states that the financial records of any business must be kept separate from those of its owner or any other business
business entity assumption
reports a company’s assets, liabilities, and owners equity at a specific point in time
balance sheet
Whats the basic accounting equation?
liabilities + owners equity = assets
