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nickgame808
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equation for net sales
sales- sales discount-sales return and allowances=net sales
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equation for cost of goods available for sale
beginning inventory+ net cost of purchases= cost of goods available for sale
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equation for net cost of purchases
purchases- purchase discounts-purchase returns and alllowances+freight in= net cost of purchases
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equation for cost of goods sold
cost of goods available for sale- ending merchandise= cost of goods sold
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periodic inventory system
physical count of inventory
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perpetual inventory system
computerized record of merchandise inventory
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weighted average equation
cost of goods available for sale/ number of units available= weighted average cost per unit
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journalizing
debiting one account and crediting another
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fiscal year
period used for calculating yearly financial statements in businesses and other organizations
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income summary
ledger account used in the closing stage of the account cycle, temporary
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cost principle
goods and services should be recorded at their historical costs not current value
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monetary unit assumption
the dollar is stable, it does not lose its purchasing power
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double entry bookkeeping
every entry into an account requires a corresponding and opposite entry to a different account
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time period assumption
divides ongoing activities in a business into periods of a year, quarterly, monthly, and weekly
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list of assets
- cash
- accounts receivable
- notes receivable
- prepaid expense
- equipment, furniture, fixtures
- building
- land
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list of liabilities
- accounts payable
- notes payable
- accrued liability
- unearned revenue
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stockholders equity
- common stock- increases
- dividends- decreases
- revenues - increases
- expenses- decreases
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account
detailed record of all increases and decreases that have occurred in an account during a specific period
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chart of accounts
used to organize a company's accounts
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ledger
record holding of all of the accounts of a business, the changes in the accounts, and their balances
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double entry system
used to record dual effects of each transaction
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journal
record of the transaction in date order
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posting
transferring data from the journal to the ledger
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trial balance
summary of the ledger listing all of the accounts with their balances
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cash basis accounting
- revenue is recorded when earned
- expenses are recorded when paid
- not allowed under gaap
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accrual basis accounting
- revenue is recorded when earned
- expenses are recorded when cash is paid
- used by most businesses
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revenue recognition principle
- dictates when to record revenue and the amount of revenue to record
- record revenue when earned
- might be different from cash collections revenue is based on the actual selling price of the items or service
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matching principle
- guides account for expenses
- expenses are recorded when they are incurred during the period
- expenses are matched against the revenue of the period
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2 types of adjusting journal entries
deferrels and accuals
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types of deferred expenses
- prepaid rent
- office supplies
- depreciation
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what is deferred revenue?
- occurs when a company receives cash before it does the work or delivers a product
- considered a liability
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accrued expenses
expenses a business has incurred but not yet paid
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types of accrued expenses
- salaries
- interest
- utilities
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accrued revenue
- performed a service but has not yet collected cash
- -debit to accounts receivable
- -credit to service revenue
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adjusted trial balance
- a summary of all accounts with adjusted balances
- ensure total debits equal total credits
- ensures balance sheet items are properly valued
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3 parts of financial statements
- income statement
- statement of retained earnings
- balance sheet
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income statement
reports revenue and expenses and calculates net income or net loss for the period
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statement of retained earnings
shows how retained earnings changed during the period
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balance sheets
reports assets, liabilities, and stockholders equity as of the last day of the period
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closing processes
zeros out all revenues and expense accounts in order to measure each periods net income separately from all other periods
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corporation
- business owned under state law, separate legal entity
- stockholder ownership
- life span is indefinite
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equation for income statement
revenues-expenses=net income or net loss
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statement of retained earnings
(beginning+net income or -net loss)- dividends for the period= retained earnings
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accounting
- an information system that
- -measures business activity
- -processes the information into reports
- -communicates the results to decision makers
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internal accounting
- (managerial accounting)
- 1. how much money does the business budget for production?
- 2. should the business expand to a new location?
- 3. how do actual costs compare to budgeted costs?
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external accounting
- (financial accounting)
- 1.should I invest in a business?
- 2.Is the business profitable?
- 3.should we lend money to the business?
- 4.can the business pay us back?
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GAAP
- generally accepted accounting principles
- -relevent
- -faithfully representative
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economic entity assumption
an organization that stands apart as a separate economic unit
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5 steps on how to close accounts
- 1. expenses put in left side of income summary
- 2. revenues put in right side of income summary
- 3. take end balance of income summary and put it in right side of retained earnings
- 4. dividends in left side of retained earnings
- 5. find ending balance of retained earngings
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post closing trial balnce
- a list of all the accounts and their balances at the end of the period after journalizing and posting the closing entries
- includes only permanent accounts
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