International accounting standards 2 Flashcards
An account is …
an individual accounting record of increases and decreases in a specific asset, liability, or equity item.
A account consists of three parts:
(1) a title,
(2) a left or debit side (Dr.), and
(3) a right or credit side (Cr.).
Debits:
Increase assets
Decrease liabilities&quity
Credits:
Decrease assets
Increase liabilities&equity
Asset accounts normally show …
debit balances. debits to a specific asset account should exceed credits to that account.
Liability accounts normally show
credit balances. credits to a liability account should exceed debits to that account.
Dr./Cr. Procedures for Equity: owner’s capital
Debits:
- Decrease owner’s capital / share capital
/ common stock
Credits:
- Increase owner’s capital / share capital
/ common stock
Dr./Cr. Procedures for Equity: Retained Earnings
Debits:
- Decrease retained earnings
Credits:
- Increase retained earnings
What are retained earnings?
Retained earnings is net income that is kept (retained) in the business. It represents the portion of equity that the company has accumulated through the profitable operation of the business. The typical balance is credit, but if the business is suffering losses (especially over a longer
time) it can be debit as well
Dr./Cr. Procedures for Equity: dividends and owner’s drawings
Debits:
-increase
Credits:
-decrease
Dividends / Owner’s drawings decrease …
retained earnings. They are a company’s distribution to its shareholders.
Dr./Cr. Procedures for Equity: revenues and expenses
Debits:
- Increase expenses
- Decrease revenues
Credits:
-Decrease expenses
- Increase revenues
If revenues are higher than expenses – there is a profit and in effect retained earnings
increase.
If expenses are higher than revenues – there is a loss and in effect retained earnings decrease.
So, we can say that revenues increase retained earnings (and equity), while expenses
decrease retained earnings (and equity).
These three steps are called the recording process:
1) Analyze a transaction
2) Enter the transaction in the journal
3) Transfer the journal information to the ledger accounts
What is the journal?
the journal is the book of original entry.
- discloses in one place the complete effects of a
transaction;
- provides a chronological record of transactions
- helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared.
What is simple entry?
If an entry involves one debit and one credit account
What is compound entry?
If an entry that requires three or more accounts
Ledger (znaczenie)
księga główna
subsidiary ledgers (znaczenie)
analityka
What is ledger?
The entire group of accounts maintained by a company.
Provides the balance in each of the accounts as well as keeps track of changes in these balances.
Companies may use various kinds of ledgers, but every company has a general ledger
The (General ledger):
Individual Assets:
* Equipment
* Land
* Supplies
* Cash
Individual Liabilities:
* Interest payable
* Salaries and wages payable
* Accounts payable
* Notes payable
Individual quity:
* Salaries and wages expense
* Service revenue
* Dividends
* Retained earnings
* Share capital
What is posting?
transferring the journal entries to the ledger
What is charts of accounts?
Lists the accounts and the account numbers that identify their location in the ledger.
Numbering system: Usually starts with the statement of financial position accounts and follows with the income statement accounts.
Number of accounts: Depends on the amount of detail management desires.
Companies leave gaps to permit the insertion of new accounts as needed during the life of the business.
The trial balance:
A list of accounts and their balances at a given time.
Proves the mathematical equality of debits and credits after posting.
- List the account titles and their balances in the appropriate debit or credit column
- Total the debit and credit columns.
- Verify the equality of the two columns
A trial balance may balance even when:
- Transaction not journalized.
- Correct journal entry not posted.
- Journal entry posted twice.
- Incorrect accounts and/or sides used in journalizing or posting
- Offsetting errors made in recording the amount of a transaction
offsetting (znaczenie)
kompensowanie
trial balance (znaczenie)
bilans próbny / saldo próbne
Currency signs:
- Do not appear in journals or ledgers.
- Typically used only in the trial balance and the financial statements.
- Shown only for the first item and the total in the column.
Underlining:
- A single line is placed under the column of figures to be added or subtracted.
- Totals are double-underlined.
Period (periodicity) assumption:
Accountants divide the economic life of a business into
artificial time periods.
Period assumption (znaczenie):
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