Introduction to accounting Flashcards
What is modern definition of accounting?
It is the act of identifying, measuring and communicating economic information to permit informed judgement and decisions by users of that information.
Who created accounting equation?
Luca Pacioli
DEBIT IS THE DESTINATION
CREDIT IS THE SOURCE
Easy way to remember DEALER EQUATION
DIVIDENDS + EXPENSES + ASSETS = (DR)
LIABILITIES + OWNER’S EQUITY + REVENUE (CR)
Who is the father of accounting
Luca Pacioli (Luca Patcholi—- pronounciation)
Main functions in Accounting? 8
Identifying
Measuring
Recording
Classifiying
Summarising
Analysing
Interpreting
Communicating
For economic institutions use the term “entity”?
For companies, organistions etc during financial transactions use the term entity.
Accounting is a means of communication?
Accounting is a means of communication like a language for conveying accounting information to USERS to enable them to make reasonable decisions.
Difference between Accounting and bookkeeping?
Read book page 1.5
What is Accrual Method?
Accrual accounting is an accounting method that records revenues and expenses before payments are received or issued. In other words, it records revenue when a sales transaction occurs. It records expenses when a transaction for the purchase of goods or services occurs.
English approach to accounting?
Three categories
Personal A/C
Real A/C
Nominal A/C
American approach for accounts?
Capital — Cr
Asset — Dr
Liabilities— Cr
Expenses — Dr
Income — Cr
Drawings — Dr
Debit Aspect
Usually Assets/Expenses and losses come in the debit part.
Credit Aspect
Usually Income liabilities and capital
Why is trial balance used before summarizing?
Trial balance is used to check the ledger for any arithmetic errors and maintain accuracy
Personal accounts overview
Contains
Natural accounts– Individual accounts like Susan’s A/C
Artificial Accounts– SBI and corporations accounts etc
Representative Accounts — Prepaid Insurance and Outstanding salary.
Debit the receiver (receives from business)
Credit the giver (gives to business)
Current Assets?
List of Current Assets.
#1 – Cash and Cash Equivalents.
#2 – Marketable Securities.
#3 – Accounts Receivables.
#4 – Inventory.
#5 – Prepaid expenses.
#6 – Non-trade Receivables.
#7 – Other Current Assets.
Another name for accounting equation?
Balance sheet equation.
Increase and decrease of credit and debit
Salary a/c to cash expense increasing debit asset decreasing credit
When liability is increased in account eg a bank loan the liability increases so does the debit as the cash is obtained
Wages/Salary/Expense outstanding is a liability
Salary is a expense
prepaid rent is a what?
Asset in accounting equation
What is accrued interest
What Is Accrued Interest? In accounting, accrued interest refers to the amount of interest that has been incurred, as of a specific date, on a loan or other financial obligation but has not yet been paid out.
The revenue centre
Is a part of the organisation that earns sales revenue
