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Bookkeeping > Foundations Vocabulary > Flashcards

Foundations Vocabulary Flashcards

1
Q

Assets (def.)

A

Summary: things you own

Actual Def: probable economic benefit obtained or controlled by a particular entity as a result of past transactions or events

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2
Q

Liabilities

A

Summary: debts that you OWE

Actual Def: probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions

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3
Q

Equity

A

Summary: what’s left over

Actual Def: the residual interest in the assets of an entity that remains after deducting it’s liabilities

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4
Q

What is the accounting equation?

A

Assets = Liabilities + Equity

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5
Q

Does the accounting equation always have to be in balance?

A

Yes

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6
Q

True or false: sometimes only one side of the accounting equation is affected

A

True

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7
Q

True or false: Both sides of the accounting equation are always affected

A

False

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8
Q

Which component of the accounting equation has two components?

A

Equity

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9
Q

What are the components of equity?

A
  1. ) income

2. ) expenses

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10
Q

How do the two components of equity balance to create equity?

A

Income - Expenses = Equity

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11
Q

What is the equation for equity using its 2 components?

A

Income - expenses = equity

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12
Q

What is an accounts payable?

A

A bill or liability that is payed at a later date, generating an invoice

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13
Q

Into which category of the accounting equation does cash fall?

A

ASSET

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14
Q

Where are debits and credits displayed on T charts?

A

Debit on the left

Credit on the right

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15
Q

Debited or to debit (Def)

A

The act of putting a debit into an account

debit denotes incoming

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16
Q

Is debit incoming or outgoing?

A

Incoming

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17
Q

Credited or to credit (Def)

A

The act of putting credits into an account

Credit denotes outgoing

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18
Q

What do you do to an asset if you want it to ~increase~?

A

DEBIT IT

see chart

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19
Q

what do you do if you want to ~decrease~ an asset?

A

CREDIT IT

see chart

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20
Q

what do you do it you want to ~increase~ an expense?

A

DEBIT IT

see chart

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21
Q

what do you do if you want to ~decrease~ an expense

A

CREDIT IT

see chart

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22
Q

what do you do if you want to ~decrease~ a liability?

A

DEBIT IT

see chart

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23
Q

what do you do if you want to ~decrease~ Equity

A

DEBIT IT

see chart

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24
Q

what do you do if you want to ~decrease~ Revenue

A

DEBIT TI

see chart

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25
Q

what do you do it you want to ~increase~ a liability?

A

CREDIT IT

see chart

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26
Q

what do you do it you want to ~increase~ equity

A

CREDIT IT

see chart

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27
Q

what do you do it you want to ~increase~ a revenue

A

CREDIT IT

see Chart

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28
Q

The General Ledger (Def)

A

summary: all transactions, set of accounts

Actual Def: a compilation of all financial transactions classifying and summarizing them.

*the most detailed section of bookkeeping records

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29
Q

which document/ location shows all transactions in the most detail?

A

the general ledger

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30
Q

How is the chart of accounts abbreviated?

A

COA

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31
Q

what is the COA?

A

chart of accounts

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32
Q

Chart of accounts (Def)

A

summary: essentially a roster or table of contents

Actual Def: a listing of all accounts used by the business to record and classify financial transactions. A listing of accounts shown in the ledger

  • every account must be one of the 3 categories in the accounting equation: Asset, liability, equity, income or expense ALWAYS IN THAT ORDER
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33
Q

what categories must the accounts in the COA fit into?

A

asset, liability, equity, income, expense IN THAT ORDER

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34
Q

what order much the COA be in?

A

Asset, Liability , Equity, Income, Expense

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35
Q

what is the trial balance?

A

two column summary of all the debits and credits in the chart of accounts

  • similar to a book summary
  • lists all accounts in numerical order w/assets 1st and expenses last (asset,liability,equity,income,expense)
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36
Q

when is the trial balance shown?

A

at the end of an accounting period e.g. Dec. 31 or Jun. 30

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37
Q

What is GAAP?

A

Generally Accepted Accounting Principles

Def: the bookkeeping and accounting rulebook

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38
Q

Who governs GAAP?

A

FASB - the Financial Accounting Standards Board

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39
Q

Accounting Principle #1

Economic Entity Assumption

A

the business and it’s financial transactions are separate and distinct from the owner’s personal finances

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40
Q

what is the 1st accounting principle?

A

the Economic Entity Assumption

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41
Q

Accounting Principle #2

Monetary Unit Assumption

A

Financial transactions are measured in U.U. Dollars

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42
Q

what is the 2nd accounting principle?

A

The Monetary Unit Assumption

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43
Q

Accounting Principle #3

Time Period Assumption

A

the financial transactions and statements cover a specific span of time (weeks, months, years) the specific span of time is clearly shown on all financial reports + statements

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44
Q

what is the 3rd accounting principle?

A

the Time Period Assumption

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45
Q

Accounting Principle #4

Cost Principle

A

financial transactions are shown, forever, as the original and historical cost - we do NOT adjust for inflation or decrease in the value of an item.

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46
Q

what is the 4th accounting principle?

A

the Cost Principle

47
Q

Accounting Principle #5

Full Disclosure Principle

A

all pertinent information must be disclosed on the financial statements - NO HIDING THINGS

48
Q

what is the 5th accounting principle?

A

the Full Disclosure Principle

49
Q

Accounting Principle #6

Going Concern Principle

A

the business is going to last into the foreseeable future - if a business is going under we typically stop reporting

50
Q

what is the 6th accounting principle

A

the Going Concern Principle

51
Q

Accounting Principle #7

Matching Principle

A

forces us to use what is called the accrual basis of accounting - expenses are matched with revenue (ex. cost of a product is shown when sold - sales commission is reflected in the period the sale is recorded) putting things in the proper time period

  • if you incur a debt this month but don’t pay until next, it needs to be recorded this month, when the debt was accrued
52
Q

what is the 7th accounting principle?

A

the Matching Principle

53
Q

Accounting Principle #8

Revenue Recognition Principle

A

Revenue/sales/income is shown on the financial statements at the time when a service is performed or a good is sold. - same as the the matching principle for expenses except for revenue/income.

54
Q

what is the 8th accounting principle?

A

the Revenue Recognition Principle

55
Q

Accounting Principle #9

Materiality Principle

A

is it “insignificant”? if yes don’t sweat it e.g. a $0.50 sale that wasn’t recorded per the revenue recognition principle - USE THE MATERIALITY PRINCIPLE SPARINGLY

56
Q

what is the 9th accounting principle?

A

the Materiality Principle

57
Q

Accounting Principle #10

Conservatism Principle

A

when faced with a choice on financial statements, choose the option that reflects…

  • a decrease in net income
  • a decrease in assets/equity
  • an increase in liabilities
58
Q

what is the 10th accounting principle

A

the Conservatism Principle

59
Q

what is the purpose of a financial statement?

A

to help business owners keep score

60
Q

list the financial statements

A

the balance sheet
the income statement
the statement of cash flows

61
Q

what questions do financial statements answer

A
  1. ) what is the equity (capital) in the business
  2. ) what is my profit (net)
  3. ) where did cash come from and where did it go?
62
Q

which financial statement answers the Q “what is the equity (capital) in the business?”

A

the balance sheet

aka “the statement of financial position” or “the statement of financial condition” (usu. in Non-Profits)

63
Q

which financial statement answers the Q “what is my profit (net)?”

A

the income statement

64
Q

which financial statement answers the Q “ where did it come from where did it go where did it come from cotton eyed joe (cash)?”

A

the statement of cash flows

65
Q

what is the balance sheet and what question does it answer?

A

shows equity (capital) in the business

  • represents the accounting equation in statement form
  • answers the Q “what the equity (capital in my business)
  • the income statement feeds into the balance sheet so things…..balance lol
  • balances are as of a specific date and are in order assets-liabilities-equity (all totaled)
66
Q

what is the income statement and what question does it answer?

A
  • a summary of the revenue, costs, expenses and net income (loss) of a business over a specific time period
  • answer the question “what is my income/profit/net”
  • income is about intervals of time (I&I)
  • Revenue - Costs - Expense = net income/net loss
  • it is a temporary statement and it gets closed out at the end of certain periods
  • feeds into the balance sheet

*in QB its called the P&L

67
Q

what is the statement of cash flow and what question does it answer?

A

divides cash flow into 3 main categories

  • operating activities e.g. sales, purchases, bills (most cash movement)
  • Investing activities e.g. buying equipment
  • Financing activities e.g. taking out a loan or adding equity
  • answers the Q “cotton eyed joe?”

most bookkeepers don’t show this to their clients, but it’s a disservice not to.

68
Q

what are the steps in the bookkeeping cycle?

A

Financial Transactions –> Journal (special) –> Ledger (special) –> Trial Balance –> Financial Statements –> Closing Entries –> Financial Transactions

69
Q

where are journals in the bookkeeping cycle?

A

after financial statements and before ledgers

70
Q

where are ledgers in the bookkeeping cycle?

A

after journals and before the trial balance

71
Q

where is the trial balance in the bookkeeping cycle?

A

after ledgers and before financial statements

72
Q

where are financial statements in the bookkeeping cycle?

A

after the trial balance and before closing entries

73
Q

where are the closing entries in the bookkeeping cycle?

A

after financial statements and before the newest round of financial transactions

74
Q

what is the first step in the bookkeeping cycle?

A

Financial Transactions

75
Q

what is the last step in the bookkeeping cycle?

A

closing entries

76
Q

what is the Journal

A

the place where the financial transactions are first recorded

also called the book of original entry

  • runs in chronological order
  • 2 types of Journal
  • general journal
  • special journals (lots of repetitive entries)
  • the journal is more detailed than the ledger
77
Q

what is journalizing

A

the process of recording transactions in chronological order

78
Q

what is the process of recording transactions in chronological order called

A

Journalizing

79
Q

what happens after transactions are journalized?

A

the info is posted to the ledger

80
Q

what is “posting”

A

the process of transferring information from the journal to the ledger

81
Q

what is the purpose of special journals

A

they make it easier to monitor repetitive transactions by grouping them

82
Q

examples of special journals

A
  • Cash Receipts Journal (CRJ) : incoming
  • Cash Disbursements Journal (CDJ) : outgoing
  • Purchases Journal: differs from CDJ bc you can make a purchase w/o paying
  • Sales Journal: differs from CRJ bc you can make a sale w/o being paid
  • if a transaction does not fall into one of these special journals it is posted to the general ledger
83
Q

what happens to transactions that do not fall into a special journal?

A

they are posted to the general ledger

84
Q

when sales are made “on account” (no cash received) they are recorded where?

A

the sales journal

85
Q

what is the Sales Journal

A

the special journal where sales where no cash was received are recorded

86
Q

what is the CRJ?

A

the Cash Receipts Journal, a special journal for incoming cash that was received upon performing a service or selling a good.

  • recorded daily
  • when cash is received form sales on accounts (in the sales journal) it is posted in the CRJ
87
Q

what is the CDJ?

A

the Cash Disbursements Journal, a special journal for purchases made with cash
or for purchases made on account that have been paid

88
Q

what is the Purchases journal?

A

the special journal for expenses and purchases made “on account” (no immediate payment)

89
Q

Name the methods of payment

A
  • cash
  • checks
  • draft (automatic bank payment)
  • Banker’s Acceptances
  • Direct Deposit/ Debit (ACH: Automatic Clearing House)
  • wire transfer
  • NACHA
  • credit/debit card
  • paypal
90
Q

when it comes to bank security, always assume this…

A

that business owners are being secure. there are always updates that can be made to enhance security, take every precaution

91
Q

list the ways to ensure security

A
  • PIN’s
  • Passwords - change frequently
  • 2-factor authentication
  • dual signatures on physical checks
  • only allowing business owners to approve money going out
  • internal controls
  • payment/spending limits
92
Q

list types of accounting bases

A
  • the accrual basis (what we do)
  • the cash basis (what most accountants and bookkeepers do
  • the income tax basis
93
Q

what are the differences between accrual and cash based accounting?

A 
accrual = record when earned 
cash = record when paid
  • it all boils down to ~when~ revenue and expenses are recorded
  • its all about matching your expenses w/your income from the same period
    ex. w/cash method, if rosemary charged a patients insurance sh would record $0 on the day of the transaction, this makes it impossible to see how the business is doing in any given period
94
Q

The listing of all accounts used by a business to record and classify financial transactions is the

A

chart of accounts

95
Q

what is the two-column summary of all the debits and credits in the Chart of Accounts?

A

the Trial Balance

96
Q

What is used to classify and summarize financial transactions?

A

ledger

97
Q

what is the ledger

A

used to classify and summarize financial transactions?

98
Q

If a business owner wanted to know the financial health of his company, which of the 3 financial statement would he need to see?

A

all three

99
Q

which financial statement is also referred to as “the statement of financial position”?

A

the Balance Sheet

100
Q

Which financial statement would show a company’s profit for January of the current year?

A

Income Statement

101
Q

Which financial statement shows the balances in the accounts as of a specific date?

A

the Balance Sheet

102
Q

Operating, investing, and financing activities are shown on which financial statement?

A

the statement of cash flows

103
Q

If a business owner wanted to know where her cash came from and where it went, she would need which financial statement?

A

the Statement of cash flows

104
Q

Which financial statement is like the accounting equation in financial statement form?

A

the Balance Sheet

105
Q

If a business owner asked you for their Profit & Loss (P&L) report, which financial statement would you provide?

A

the Income Statement

106
Q

Which financial statement is a temporary statement that gets closed out?

A

the income statement

107
Q

If a business owner wanted to know how much equity was in their business, which financial statement would you provide?

A

the Balance sheet

108
Q

What are the most common types of Cash Journals?

A
  1. ) Cash Receipts Journal (CRJ)

2. ) Cash Disbursements Journal (CDJ)

109
Q

Where are Accounts Receivable transactions recorded?

A

the sales journal

110
Q

What are the most common Subsidiary Ledgers?

A
  1. ) the accounts payable ledger

2. ) the accounts receivable ledger

111
Q

What does it mean when sales are made “on account”?

A

No cash was received, and an Accounts Receivable was created.

112
Q

If a transaction does not fall into a Special Journal, then it is posted to the Trial Balance. T or F

A

False - it is recorded to the general ledger

113
Q

what is the purpose of a subsidiary ledger?

A

used to simplify the general ledger (the same way special journals simplify the general journal)

  • it removes the need to post individual transactions to the general ledger
  • it helps with internal controls
  • allows us to track activity by customer ( for A/R) or by vendor (for A?P)

Bookkeeping (1 decks)

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