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Bookkeeping > Introduction > Flashcards

Introduction Flashcards

1
Q

What are financial statements?

A

a means of whereby the effects of lots of transactions are summarized and reported in a manner that is useful to users of financial statements.

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2
Q

What are the three major financial statements?

A

Balance Sheet
Income Statement
Statement of Cash Flows

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3
Q

What is the fundamental financial statement?

A

Balance Sheet

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4
Q

What three items are summarized on the Balance Sheet?

A

Assets (cash, land, inventory..)

Liabilities and Equities (where did company get money to buy assets.)

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5
Q

What are assets?

A

Assets are valuable resources that provide a benefit in the future.

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6
Q

What are liabilities?

A

Liabilities are obligations to repay money or to provide a service in the future.

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7
Q

What are two methods of financing to buy assets?

A

Liability financing

Owner’s Equity

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8
Q

How can owners finance buying assets?

A

investing in company

retaining earnings

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9
Q

What is the formula for the income statement?

A

Revenues - Expenses = Net income

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10
Q

What is revenue?

A

the amount of assets generated in doing business.

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11
Q

What are the three primary financial statements?

A

Balance Sheet

Income Statement

Statement of Cash Flows

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12
Q

What are the three categories of cash flow on the Statement of Cash Flows?

A

Operating Activities

Investing Activities

Financing Activities

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13
Q

What does the Statement of Cash Flows do?

A

It summarizes the in flow and out flow of cash for a given time.

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14
Q

What are operating activities?

A

What companies do: collect cash from customers, pay employees, pay rent, pay for advertising, they do research and development.

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15
Q

What are investing activities?

A

Investing in the productive capacity of the business: buying land, buying machines…Operating activities occur every day. Investing occurs occasionally.

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16
Q

What are investing activities?

A

obtaining the capital to buy assets

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17
Q

What is a cash cow?

A

Operations generate enough cash to pay for all operating, investing and financing activity

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18
Q

A company’s resources can be financed in what two ways?

A

Creditors

or

Owners

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19
Q

When does the accounting equation not balance?

A

When you’ve done something wrong.

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20
Q

What is an account?

A

An account is a specific accounting record that provides an efficient way to categorize similar transactions.

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21
Q

What are examples of asset accounts?

A

cash, inventory and equipment

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22
Q

What are examples of liability accounts?

A

accounts payable and notes payable

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23
Q

What are examples of Equity accounts?

A

capital stock, paid in capital and retained earnings

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24
Q

Why are pluses and minuses separated into two columns?

A

To limit the opportunity for mistakes of pluses and minuses in one column. The plus column and the minus column are added and the results compared.

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25
Q

What is double entry bookkeeping.

A

entering credits and debits in a T account

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26
Q

In a T account how are the left and right side identified?

A

The left side is debit (dr) and the right side is credit (cr).

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27
Q

Typically an asset account will have what kind of balance?

A

a debit balance

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28
Q

Typically a liability for owner’s equity account will have what kind of balance?

A

a credit balance

29
Q

How is a cash account decreased?

A

It is credited.

30
Q

Debits should always equal ______?

A

Credits

31
Q

What three basic facts important to double entry bookkeeping?

A

Debits are added to the left column and credits are added to the right column.

For every transaction there must be a one debit and one credit.

Debits are always equal to credits.

32
Q

What do revenues represent?

A

resource inflows

33
Q

What do expenses represent?

A

resource outflows

34
Q

What are expenses?

A

They are costs incurred in generating revenues.

35
Q

Revenues and expenses can be thought of as temporary subdivisions of what?

A

Owner’s equity

36
Q

Owner’s equity accounts are increased with revenue and with ______?

A

Credits

37
Q

Owner’s equity accounts are decreased with expenses and with ______?

A

Debits

38
Q

Revenues increase _______ and increase with _____?

A

Owner’s equity

Credits

39
Q

Expenses decrease ______ and decrease with _____?

A

Debits

40
Q

As expenses go up, what temporarily goes down?

A

Owner’s equity

41
Q

In accounting debit means ______?

A

left

42
Q

The affects of revenues and expenses on owners’ equity is indicated with _______ for each transaction.

A

brackets

43
Q

Cash increases with a debit or credit?

A

debit

44
Q

What are receivables?

A

Allowing certain customers to pay at a later date.

45
Q

When receivables are collected, the asset is _______ and cash is ______?

A

reduced

increased

46
Q

When accounts receivable decrease, it is shown with a credit or debit

A

credit

47
Q

What is the effect on the accounting equation of an expense?

A

It decreases assets and decreases owner’s equity.

48
Q

You pay $50 for gasoline. How is this reflected in the accounting equation?

A

Expense account is debited for $50. (decrease in owner’s equity). Cash is credited to show cash went down.

49
Q

You collect a receivable. How is this shown in the accounting equation?

A

When receivable is collected, the asset is reduced and cash is increased. Cash increases with a debit and the asset, accounts receivable, decrease with a credit.

50
Q

Is revenue involved in collecting accounts receivable?

A

No

51
Q

With accounts receivable, when is the revenue recorded?

A

When the sale is transacted.

52
Q

Why is cash collection on an account receivable not revenue?

A

It involves exchanging one asset for another.

53
Q

When you pay a receivable, how does it effect the accounting equation?

A

Cash is paid, therefore cash will go down, and being an asset, it will go down with a credit.

Our liability is being paid and liabilities decrease with debits.

54
Q

A loan repayment requires a compound entry because?

A

A portion of payment reflects paying off principal,a liability, and a portion reflects paying interest an expense .

55
Q

In loan repayment, principal, a liability, is paid with cash. Liabilities decrease with _____?

A

debit

56
Q

$25,000 is borrowed from the bank. What two accounts are involved for the borrower?

A

‘Cash’

and

‘Notes payable’

57
Q

In the $25,000 bank loan, Cash increased. In the accounting equation Cash is considered an _____?

A

Asset

58
Q

In the $25,000 bank loan, Assets increase with a _____?

A

Debit

59
Q

In the $25,000 bank loan Notes Payable increased, the accounting equation considers the loan to be a ______?

A

Liability

60
Q

In the $25,000 bank loan, the liability increased with a ______

A

Credit

61
Q

Inventory costing $60,000 is sold for $70,000. What accounts are involved?

A

Accounts Receivable (Asset)

Inventory (Asset)

Cost of Goods Sold (an expense, part of Owner’s Equity)

Sales Revenue (Owners Equity)

62
Q

What is an account?

A

A record to categorize like items.

63
Q

What do accounts show?

A

Transaction dates
Increases
decreases
balances

64
Q

What is posting?

A

Sorting all journal entry amounts by account and copying those amounts to the appropriate account.

65
Q

What is a Chart of Accounts?

A

The list of accounts used by a company.

66
Q

What is the difference between the General Journal and the General Ledger?

A

Thus, the general journal is where those transactions are first recorded that are not being stored in a subject-specific journal, while the general ledger stores the summary-level information from each of the journals.

67
Q

What is the General Ledger?

A

A general ledger is the master set of accounts that summarize all transactions occurring within an entity.

68
Q

What is the General Journal?

A

When an event occurs that must be recorded, it is called a transaction, and may be recorded in a specialty journal or in the general journal.

69
Q

Are Trial Balances shown to the public.

A

No

Bookkeeping (1 decks)

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