Revenue and Accounts Receivable Flashcards
Revenues and Bad Debts
Balance Sheet shows:
The financial picture at a specific point in time (i.e. one month)
Income statement shows:
Changes in retained earnings over a period of time (i.e. quarter)
Cash flow statement shows:
Tracks cash over a period of time, reconciles net income to actual cash account
Historical cost vs. Fair Market Cost
Historical Cost is what the asset originally cost; Fair market cost is the value of the asset today
Capitalizing an Expense:
Spreading the cost reporting of capital equipment over the useful life of that equipment
How is depreciated treated on a cash flow statement?
Depreciation expenses are added back to the operating cash (Capital expenditures are deducted)
Depreciation vs Amortization
Depreciation spreads the cost or accounts for the decreasing value of an asset. Amortization spreads the cost of an expense that is not associated with a tangible asset (i.e. insurance)
What is listed on The Balance Sheet?
Assets, Liabilities and Stockholder’s Equity
What is listed on the Statement of Cash Flows?
Detailed cash inflows and outflows from operating, investing, and financing activities over a specific period of time.
What are the four types of financial statements?
Balance Sheet, Statement of Cash Flows, Statement of Owner’s Equity, and Income Statement
What are the dual purposes of an adjusting journal entry?
- To make the income statement report proper revenues and expenses
- To make the balance sheet report proper assets and liabilities
Define Matching Principle:
The matching principle requires that expenses incurred in producing revenues be recorded and deducted from the revenues they generated during the accounting period.
Define Deferred Items:
Adjusting entries involving data previously recorded in accounts.
Deferred items consist of what two types of adjusting entries?
Asset/Expense adjustments and Liability/Revenue adjustments
Define Accrued Items:
Adjusting entries relating to activity on which no data have been previously recorded in accounts.
Accrued items consist of which two types of adjusting entries?
- Asset/revenue adjustment
2. Liability/expense adjustment
Deferred items vs Accrued items
Deferred items generally consist of prepaid expense,(i.e. supplies or work paid in advance) Accrued items generally consist of postpaid expense (unpaid salary or not-yet billed service)
Summarize the accounting cycle
- Analyze each transaction.
- Record each transaction in a journal (ordered by date).
- Transfer each transaction to the accounts affected in the ledger.
(The ledger is a set of accounts ordered by account number.) - Summarize the transactions in the form of financial statements:
Net Income = Revenues - Expenses
Net Income = Revenues - Expenses
Revenues _________ Owner’s Equity .
Increase
Expenses _______ Owner’s Equity.
decrease
a. Income Statement:
Shows the net income (profit) of the company.
b. Owner’s Equity Statement:
Shows the owner’s claim in the business.
c. Balance Sheet:
Shows the financial position of the company.
