Test 1 Flashcards
U.S. governmental agency that oversees U.S. financial markets.
SEC
A privately funded organization that formulates accounting standards.
FASB
Main U.S. accounting rule book.
GAAP
Accounting is..
The language of business
Definition of liability
What you owe on assets (accounts payable). Debts payable to outsiders.
Definition of assets
What we own
What does an owner of a corporation do?
Obtain charter from state, issue stock, and conduct business in accordance with state law.
Accounting equation
Assets = liabilities + equity
Definition of equity
Owner’s claim to assets
Good for 1 day. Inaccurate after another transaction is made.
Balance sheet
1st statement that can be prepared because the other financial statements rely upon the net income number calculated on it.
Income statement
Order of preparing the financial statements
Income statement - balance sheet - statement of owner’s equity - statement of cash flows
Chronological record of transactions (organized by date)
Journal
The book holding all the accounts and their balances (organized by account)
Ledger
Accounting process
Record transactions in the journal - copy to the ledger - prepare the trial balance
What are debits?
Assets, expenses, drawing
What are credits?
Liabilities, capital, revenues
Define posting
Coping amounts from the journal to the ledger.
For a specific date.
Trial balance
Revenues recognized when earned. Expenses recognized when incurred.
Accrual basis
Revenues recognized when cash received. Expenses recorded when cash paid.
Cash basis
Define liquidity
How quickly an item can be converted into cash.
Temporary accounts
Closed at the end of a period. Start next period with a zero balance. (revenues, expenses, drawing)
Permanent accounts
Not closed at the end of the period. Ending balance carries forward to next period. (assets, liabilities, capital)
Current assets
Cash Accounts receivable Supplies Prepaid expenses Inventory
Long-term assets
Plant assets (land,building,equipment)
Long-term investments
Other assets
(Not converted to cash within the current year or operating cycle)
Current liabilities
Accounts payable Notes payable within 1 year Salary payable Interest payable Unearned revenue (Must be paid within 1 year/operating cycle)
Long-term liabilities
Notes payable due over 1 year
Mortgages
(Are not due within 1 year/operating cycle)
Formula for current ratios
Total current assets / total current liabilities
Formula for debt ratio
Total liabilities / total assets
