First Day Flashcards
Accounting is a….
What is the importance of accounting
System that
identifies , records, communicates
What are the types of businesses
Corporation , proprietorship,partnership
What does GAAP stand for
Generally accepted accounting principles
GAAP is
Rules and regulations used to govern companies , it makes them comparable
Who comes up with GAAP
The financial Accounting Standing board
For publicly traded companies who makes GAAP?
SEC (securities exchange commission)
What does IFRS stand for
International financial reporting standards
What is IFRS?
Set of universal standards for Acct.
What does SEC stand for?
Securities exchange commission
Who comes up with IFRS?
IASB
What does IASB stand for ?
International accounting standards board
How many accounting principles are there?
2
What are the 4 basic accounting principles?
Measurement principle(cost principle)
Full disclosure principle
Revenue recognition principle
Expense recognition principle (matching principle )
What is the revenue recognition principle ?
Guidance on when a company must recognize (record) revenue.revenue is recognized when earned (the transaction is complete)
What is the measurement principle (cost principle)?
Acct. based on actual cost, cost is measured on a cash or equal to cash basis
What is the full disclosure principle ?
Company reports details behind financial statements that would impact users decisions
-usually on footnotes of a statement
What is the expense recognition principle (matching principle )?
Company record the expenses it in incurred to generate revenue reported
What is the accounting equation ?
Assets =liabilities +equity
What are the 6 types of accounts ?
Assets Liabilities Equity Revenue Expense Dividend
Assets are?
Resources owned by a company
Liabilities are ?
Company’s debt (something you owe ), a creditors claims on assets
Equity?
Owners stake , owners claim on assets
Revenue is ?
Income earned (doesn’t have to be money )
Expense is ?
Cost you incur to generate revenue
Dividends are ?
Return on investment (take earnings and give it to share holders )
What is the accrual bases of acct?
When we earn revenue we record is or when expenses are incurred NOT on cash bases
What is double entry accounting ?
When at least 2 accts are effected
(Both can be from same category )
Credits and debits must add up
Debit and credit is a
Increase or decrease
Owners equity made of
Capital stock and retained earnings
Revenues do what to retained earnings
Increase them
Expenses do what to retained earnings ?
Decrease them
Dividends do what to retained earnings ?
Decrease them
Accounts receivable is
When you receive a resources value
Fees earned is
Revenue , we earned more fees
What is record or book keeping
Recording of transactions and events either manually or electronically
What are the three sides on the fraud triangle
Opportunity
Rationalization
Financial pressure
What are the three major categories of accounting
Private -working for businesses (58%)
Public-auditing and tax advice (23%)
Government, non for profit and education -
Business regulation and investigation of law violations (19%)
Cash basis accounting
Accounting system that recognizes revenues when cash is received and records expenses when cash is paid
Current ratio is
Current ratio = currents assets/current liabilities
What is a current ratio?
One measure of a company’s ability to pay its short term obligations
Less than 1.0 trouble w short term obligations
More than 1.0 can cover its short term assets
What accounts are not closed
Assets liabilities, and equity
What accounts must end every period with zero balances
Revenue , expense, dividends
What is the income summary
A temporary account used for the closing process that contains a credit for the sum of all revenues and a debit for the sum of all expenses
Balance =net income or net loss
Debt ratio is a
Percentage and inverse of current ratio
Accounting is known as the language of
Business
Two groups of accounting
Internal and external
What did sox (sarabanes oxley act) require
Public companies apply both accountng oversight and strigent internal controls to help curb financial abuses at companies that offer stock to the public
When revenue exceeds expenses
Net income
Three major types of business activities
Financing
Operating
Investing
Individuals and organizations that have a right to force the sale of companies assets to obtain money to meet creditors claims
Creditors
An example of unearned revenue
Season ticket, magazine subscriptions
Used to evaluate a company’s ability to pay its current liabilities out of current assets
Current ratio
Recording of transactions and events either manually or electronically
Record keeping or bookkeeping
A business legally separate from its owner or owners meaning it is responsible for its own acts and it’s own debts
Corporation
A business owned by one person in which that person and the company are viewed as one entity for tax and liability purposes
Sole proprietorship
Revenues exceed expenses
Net income
Expenses exceed revenues
Net loss
This describes a company’s financial position at a point in time
Balance sheet
This reports ash receipts and payments from primary business the company engages in
Statement of cash flows
This identifies and describes transactions and events entering the accounting process
Source documents
A record of increase and decreases in a specific asset, liability, equity, revenue or expense item
Account
Record containing all accounts used by a company
Ledger or general ledger
Individuals and organizations that have rights to receive payments from a company
Creditors
A list of all ledger accounts and includes an identification number assigned to each account
Chart of accounts
Double entry accounting requires
At least 2 accounts are involved with at least one debit and one credit
Debits=credits
Accounting equation must not be violated
This gives a complete record of each transaction in one place. It also shows debits and credits for each transaction
Journal
A list of accounts and their balances at a point in time
Trial balance
Cost that are incurred in a period but are both unpaid and unrecorded
Accrued expenses
Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets)
Accrued revenues
Name temporary accounts
Revenues
Expenses
Dividends
Income summary
Name permanent accounts
Assets
Liabilities
Common stock
Retained earnings
Steps in preparing financial statements is refereed to as the
Accounting cycle
Recite the accounting cycle
1analyze transactions 2journalize 3post to ledger 4prepare unadjusted trial balance 5prepare adjusting entries 6prepare adjusted trial balance 7prepare statements 8close 9prepare post closing trial balance 10reverse
Time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services
Operating cycle
Tangible assets that are both long lived and used to produce or sell products and services
Plant assets
One measure of company’s ability to pay its shortterm obligations
Current ratio
