Introduction to Accounting Flashcards
How is accounting used in real life?
Accounting offers decision-makers the information that links their decisions and economic activities. These information include a firm’s performance, a firm’s financial position, and a firm’s change in financial position.
How is accounting different from bookkeeping?
Bookkeeping only involves recording, classifying, and summarizing. Meanwhile, accounting also involves interpreting.
What are the 3 types of business ownerships.
They are proprietorship, partnership, and corporation (sub-divided into public and private).
What are the 3 types of business operations?
They are services & firms, merchandising, and manufacturing.
How is the statement of retained earnings calculated?
It is calculated by adding the net income to the previous year’s R/E and subtracting the net dividend from that as well.
What’s the difference between an income statement and a balance sheet?
An income statement displays the revenues and expenses of a company over a period of time, but a balance sheet reports the assets, liabilities, and equity at a specific point in time. By involving a larger time frame, an income statement is more important when it comes to determining a business’s profitability.
What are the two types of liabilities. Give 3 examples for each type.
Current liabilities (<1 year) e.g. bank overdrafts (withdrawing more than you can), A/P, notes payable, other payables, unearned revenue, accrued expenses, accrued dividends, current portion L-T debt, and S-T debt.
Non-current liabilities (>1 year) e.g. L-T debt, bonds payable
What is meant by cash flow?
the total amount of cash in and out of an account
What is the accounting equation?
Assets (economic resources_ = Liabilities (external) + Equity (internal)
What are the two types of assets. Give 3 examples for each type.
Current assets (<1 year) e.g. cash, S-T investment, A/R, notes receivable, S-T loans, inventory, supplies, accrued revenue, and prepaid expenses (deferral).
Non-current assets (>1 year) e.g. L-T investment, L-T loans, property plant & equipment, and intangible assets.
What is meant by premium in finance?
Premium is the difference between the market value and the par value of a stock.
What is paid-in capital?
Paid-in capital is the combined value of the par value of stock and the excess over par.
What is the difference between a single entry and a double entry?
A single entry only puts into account the assets (debit) but a double entry identifies both assets, liabilities, and equity (debit and credit).
What is preferred more in the accounting world, cash basis or accrual basis? and why?
Accrual basis because it reflects the company’s current financial performance better than the cash basis in that cases when not all transactions are made by cash, the account is not accurate on the cash basis.
Which character in a business does the losses and profits incurred go to?
Only the shareholders. (NOT the creditors or debtors)
Does paying dividend affect a company’s profit?
A company’s profit isn’t affected by the paying of dividend
What is meant by the estimated useful life?
The estimated useful life of an asset is an estimate of the average number of years an asset is considered valuable before its value is fully depreciated
What is the salvage value of an asset?
The salvage value is the book value of an asset after all depreciation has been fully expensed
What are the 7 types of adjusting entries? elaborate.
The 7 types are
1) unearned revenue (รายได้รับล่วงหน้า) = receiving cash revenue in advance; work not done yet; considered a liability
2) prepaid expense (ค่าใช้จ่ายล่วงหน้า) = paying cash expense in advance; considered an asset
3) accrued revenue (รายได้ค้างรับ) = revenue is incurred but no cash received yet; = revenue receivable; NOT accounts receivable (not a company’s main operations
4) accrued expense (ค่าใช้จ่ายค้างจ่าย) = expense is incurred but no cash paid yet; =expense payable
5) supplies used
6) depreciation expense
What is a contra account?
A contra account is an account used in a general ledger to reduce the value of a related account
When is an income summary used?
An income summary is used when closing temporary groups of accounts e.g. DR. service revenue CR. income summary, then DR. income summary CR. retained earnings
