Revision Flashcards
What is the role of accounting in business?
Accounting is a information system that provides reports to users about economic activities and the condition of a business
Process by which accounting provides information
Identifying Users
Assesing user needs
Designing accounting system to meet user needs
Recording economic data about business activities + events
Prepare account reports
Different Types of Accounting
Managerial Accounting: Provides info to internal users , it is private accounting
Financial Accounting: Provides relevant and timely info to external users such as financial statements
What is the Business Entity Concept
Activities of a business are recorded separately from the activities of it’s owners, creditors or other businesses
Cost Concept
Under this concept amounts are recorded in the accounting record at their cost/purchase price
The cost concept also includes the objectivity concept and the unit of measure concept
Objectivity & Unit of Measure Concepts
Objectivity requires that amounts recorded must be based on objective evidence and that only the final agreed upon amount is enough to be recorded.
The unit of measure concept requires economic data to be recorded in dollars
Accounting Equation
Assets = Liabilities + Owners Equity
What is a business transaction?
An economic event or condition that changes an entity’s financial condition.
What is an Account Payable
A acc. payable is a liability created by making a purchase on account
What is revenue?
The money earned from the sales of goods/services
What is an Account Receivable
An acc. receivable is a claim against a customer therefore it is considered an asset
Definition of Expenses
Assets that are used in the process of earning revenue
List of Assets, liabilities and Owners Equity
Assets: Cash, Land, Supplies, Buildings, Acc. recievables
Liabilities: Acc. payable, Wages payable, Notes payable
Owners Equity: Fees earned, Wages Expenses, Rent Expenses, Unwritten expenses
What are Financial Statements
Financial statements are written records that convey the business activities and the financial performance of a company.
Which are the financial statements
Income statement, Statement of owners equity, Balance Sheet, Statement of cashflows
What is an income statement?
The income statement is a summary of revenue and expenses for a specific period of time such as month or year, it uses the matching concept.
What is a Statement of Owners Equity
It is a summary of changes in O.E. that have occurred during a specific period i.e. month or year
• Prepared after income statement because Net income/loss needs to be reported in the statement
What is a Balance Sheet
The balance sheet is a list of assets, liabilities and owners equity as of a specific date (usually close of a month or year)
What is a statement of cash flows
A summary of the cash receipts and cash payments for a specific period of time
Consists of 3 sections: Operating activities, Investing Activites and Financing Activities
• Cashflow from investing activities reports cash transactions for the acquisition + sale of relatively permanent assets
• Cashflow financing activities reports cash transactions related to cash investments by the owner, borrowing and
withdrawals from the owner.
What is Owners Equity?
Owners right to the assets of the business after all liabilities have been paid
o Owners’ equity represented by balance of owners Capital Account
o Drawing Account = Number of withdrawals made by the owner
What is Revenue
Revenue is an increase in assets and O.E. as a result of selling services/goods
i.e.
Fees earned
Commissions Revenue
Rent Revenue
What is an expense
The using up of assets or consuming services in the process of generating revenue
i.e.
Wages Expenses
Rent Expenses
Miscellaneous Expenses
The T account
The t account is a chart where transactions are recorded it has the shape of a T
left side credit
right side is debit
