Terms Flashcards
Sole Proprietorship
One owner
Partnership
At least two owners
Corporation
Owned by shareholders
Service
Businesses where actual services are provided for clients, i.e. consulting firms
Merchandising
Businesses that either make their own products or sell products made by another supplier, Sears, TjX, Hudson Bay
Manufacturing
Companies that make their own products, i.e. Ford Motors Co. IKEA
GAAP
Generally Accepted Accounting Principles
Procedures and guidelines that must be followed during the accounting process
Used to ensure everyone prepares and interprets financial reports the same way
IFRS
International Financial Reporting Standards
(for financial years beginning in 2010)
A set of international accounting rules for companies that have their shares listed on stock exchanges
Canada and a large number of countries have adopted the rules
Capital
The owner’s investment in a company
Not just cash
All assets the owner puts into the business
Assets
Properties of value owned by the business
Cash, supplies, accounts receivable, equipment
often assets are financed
Owner’s Equity
Includes all accounts that track the owners of the company and their claims against the company’s assets
Includes money invested in the company, any money taken out of the company, any earnings that have been reinvested in the company
Liabilities
Obligations that come due in the future
In accounting terms, a liability is a debt or obligation that the company must pay.
Liabilities can include accounts payable, taxes, wages, accrued expenses, and deferred revenues.
They are recorded in a company’s balance sheet
Example:
Assets (Equipment) 50,000= Liabilities (Obligation) 50,000 + Owner’s Equity 0
Companies that allow are owed money are called creditors. They have a claim to assets.
Accounting Equation
Assets = Equities
Assets: Properties of value owned by a firm
Equity: Financial claims against the assets
Assets = Liabilities + Owner’s Equity
Liabilities: Rights of Creditors
Owner’s Equity: Rights of owner
Shift in Assets
Indicates that the make-up of assets has changed, but the total of assets remains the same.
Example:
Company buys a piece of equipment with cash, equipment would increase and cash would decrease.
Total of assets would not change
Revenue
Amount earned by performing services to customers or selling goods to customers
Increases owner’s equity
Recorded when earned
Expense
Cost incurred in running a business by consuming goods or services in producing revenue
Decreases owner’s equity
Recorded when incurred
Net Income
Revenues > Expenses
Net Loss
Revenue < Expenses
Withdrawals
Money or other assets an owner withdraws from a business for personal use
Decreases owner’s equity
NOT an expense
Financial Statements
Financial statements MUST be done in correct order
- Income Statement
- Statement of Owner’s Equity
- Balance Sheet
Income Statement
Shows business results:
Revenues
Expenses
Net Income / Loss
Covers a certain period of time
Statement of Owner’s Equity
Reports changes to owner’s equity for a certain period of time
Beginning Capital Balance \+ Owner’s investment \+ Net Income - Owner’s withdrawals - Net Loss \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Ending Capital Balance
What is s the difference between Bookkeeping and Accounting?
Bookkeeping:
Analyzing what transactions occurred on a daily basis, and recording the transactions.
Accounting:
Classifying the transactions in order to prepare the monthly summary reports
Income Statement
Statement of owner’s equity
Balance sheet
Interpreting the statements and communicating the bottom line / meaning
