Fundamental Accounting Principles CH2 Flashcards
Source Documents
Identify and describe transactions and events entering the accounting system
EX. receipts, checks, purchase orders
Account
a record of increases and decreases in a specific asset, liability, equity, revenue, or expense
General Ledger
a record of all accounts used by a company
Unclassified Balance Sheet
broadly groups accounts into assets, liabilities, and equity
Accounts Receivable
held by a seller are promises of payment from customers to sellers.
* reduced when customer pays and then cash is increased.
Notes Receivable
a promissory note, written promise of another entity to pay a certain sum of money on a specific future date.
Debtors
Assets from prepayments of future expenses
* move from prepayments to expenses when expenses occur *ie. when supplies are used
EX. prepaid meal plays remain in prepayment until a meal is purchased
Supplies Account
Assets until they are used.
* when they are used their costs are reported as expenses.
IE office supplies like paper
Equipment accounts
Equipment is a asset. when it is used it wears down and is recorded as an expense.
the expense is called depreciation.
Building Accounts
Stores, offices, warehouses are assets because they provide future benefits. When the building is used it depreciates and the depreciation is recorded as an expense
Land
Cost of land is recorded in a land account
Types Asset Accounts
Cash Accounts Receivable Note Receivable Prepaid Accounts Supplies Accounts Equipment Accounts Building Accounts Land
Types of Liability accounts
Obligations to transfer assets or provides products or services to others. Accounts Payable Note Payable Unearned revenue accounts Accrued Liabilities
Unearned Revenue Account
Liability that is settled in the future when a company delivers its products or services.
Magazine subscriptions collected in advance
Rent collected in advance
Season ticket sales by sports teams
Accrued Laibilities
Accrued liabilities owned that are not yet paid
Wages payable - worker’s pay
Taxes Payable
Interest Payable
Equity Accounts
Owner’s claim on company assets
Equity = Owner’s capital - Owner’s withdrawals + Revenues - Expenses
Intangible Assets
Assets that do not have physical existence. Patents Logos Brands Brand Loyalty
Owner Capital
When an owner invests in a company it increases both assets and equity
Owner Withdrawals
Assets for personal use
* decreases both assets and total equity
Revenue Accounts
Amounts received from sales of products and services to customers.
*remove always increases equity
Expense Accounts
amounts used for costs of providing products and services are recorded in expenses accounts
*always decrease equity
Double-Entry system
Double entry accounting demands the accounting equation remain in balance, which means that for each transaction:
- at least two accounts are involved, with at least one debit and one credit.
- Total amount debited must equal total amount credited.
- net increases on one side have equal effect on the other side.
Normal balance sheet credit accounts (Cr)
Owner, Capital
Accounts Payable
Interest Payable
Unearned Revenue
Normal balance sheet debit accounts (Dr)
Prepaid Rent Note Receivable Accounts Receivable Equipment Land Prepaid Insurance Owner, Withdrawals Utilities Expense
Journal
complete record of each transaction in one place
Income Statement
reports revenues earned minus expenses
Statement of Owner’s Equity
reports how equity changes over the reporting period
Balance Sheet
reports the financial position of a company at a point in time
