ACCT 1-4.txt

  1. Business types
    • Manufacturing businesses
    • Merchandising businesses
    • Service businesses
  2. Organizational types
    • Sole proprietorships
    • Partnerships
    • Corporations
  3. Accounting
    An information sytem designed to capture and communicate a business's financial condition and performance to decision makers inside and outside the organization
  4. Private accountants
    Employed by a single business of nonprofit organization
  5. Public accountants
    Charge fees for services to a variety of businesses and nonprofit organizations
  6. Management accounting
    The area of accounting that produces financial information for internal users
  7. Financial Accounting
    The area of accounting that prpduces financial information for external users
  8. Internal users
    Primarily managers, sole proprietors, and partners
  9. External users
    Primarily bankers, suppliers, governments, and stockholders in corporations
  10. The accounting equation
    Assets = liabilities + owner's equity
  11. Five financial elements
    • Assets
    • Liabilities
    • Owner's equity
    • revenues
    • expenses
  12. Assets
    Measurable economic resources that the business owns and are likely to provide future benefits
  13. Liabilities
    Measurable and probable obligations that require the business to pay cash or deliver goods or services to others in the future
  14. Owner's equity
    The difference between the assets the Business owns and the liabilities it owes
  15. Revenues
    The amounts that the business earned in delivering goods and services to customers
  16. Expenses
    The amounts of resources an entity used to earn revenues during a period
  17. Income statement
    • To report the performance of a business over a period of time
    • Revenues - expenses = net income
  18. Statement of owner's equity
    • To report the changes in owner's equity for a period of time and link the income statement to the balance sheet
    • Beg owner's equity + add investments + net income - wihdrawls = owner's equity
  19. Balance sheet
    • To report the Amount of a business's assets, liabilities, and owner's equity at a particular point in time
    • Assets = liabilities + owner's equity
  20. Assets (examples)
    • Cash
    • Short-term investments
    • Accounts receivable
    • Inventory
    • Supplies
    • Prepaid expenses
    • Land
    • Building
    • Equipment
    • Long-term investments
    • Intangible assets
    • "specific type of" asset
  21. Liabilities (examples)
    • Accounts payable
    • Short-term notes payable
    • Wages payable
    • Taxes payable
    • Interest payable
    • Unearned revenues
    • Long-term notes payable
    • Bonds payable
    • "specific type of" payable
  22. Owner's equity (examples)
    • "proprietor's name" capital
    • "proprietor's name" drawing
  23. Revenues (examples)
    • Sales revenue
    • Fee revenue
    • Investment revenue
    • Pizza revenue
    • "specific type of" revenue
  24. Expenses (examples)
    • Cost of goods sold
    • Advertising expense
    • Insurance expense
    • Rent expense
    • Interest expense
    • Wages expense
    • Supplies Expense
    • Utilities expense
    • "specific type of" expense
    • D debit
    • E expense
    • A asset
    • D drawing

    • C credit
    • U -
    • R revenue
    • L liabilities
    • S Stockholders equity
  26. Debits
    • Left side of t-accounts
    • Increase assets and decrease liabilities and owners equity
  27. Credits
    • Right side of t-accounts
    • Decrease assets and increase liabilities and owners equity
  28. Duel effects
    Every transaction affects at least two accounts
  29. The accounting cycle
    • 1. Analyze transactions
    • 2. Record journal entries in the general ledger
    • 3. Post amounts to the general ledger
    • 4. Adjust revenues and expenses and related balance sheet accounts
    • 5. Prepare a complete set of financial statements
    • 6. Close revenues, gains, expenses, and losses to owner's equity
  30. Journal Entries
    Used to record financial information in the accounting system, which is later summarized by account in the ledger
  31. T-Accounts (General Ledger)
    • Summarizes transaction effects for each account
    • Assets: show increases on the left (debit) side and decreases on the right (credit) side
    • Liabilities and Owner's Equity: show increases on the right (credit) side and decreases on the left (debit) side
  32. Trial Balance
    • prepared at the end of the accounting period prior to preparing the financial statements
    • Each account is listed along with its debit or credit balance
    • Purpose is to check that debits equal credits
  33. Balance Sheet
    • Separately classifies assets as current if they will be used up or turned into cash within one year
    • Liabilities are classified as current if they will be paid, settles, or fulfilled within one year
  34. Operating Cycle
    The process by which a company acquires and pays for goods and services and then sells goods and services to customers who pay cash to the company
  35. Cash-Based Measurements
    Financial performance is measured as the difference between cash received and cash paid during a period.
  36. Accrual Basis Accounting
    • Revenue principle: recognized (record) revenues when they are earned
    • Matching principle: Recognize (record) expenses when they are incurred in generating revenue
    • GAAP
  37. Unadjusted Trial Balance
    A list of all accounts and their unadjusted balances and is used to check on the equality of recorded debits and credits
  38. Revenues are ___
    earned when there is an exchange of a business's products of services for cash or a promise to pay cash
  39. Expenses are ___
    incurred to generate revenues
  40. Types of Adjustments
    • Unearned revenues
    • Accrued revenues
    • Prepaid expenses
    • Accrued expenses
  41. Unearned Revenues
    Cash was received before it was earned
  42. Accrued revenues
    Cash will be received after being earned in the current period
  43. Prepaid expenses
    Cash was paid for an asset before it was used to generate revenue
  44. Accrued expenses
    Cash will be paid after the expense was incurred
  45. Process of closing the books
    (Closing entries)
    • CE1: Revenue to income summary
    • CE2: Expenses to income summary
    • CE3: Income summary to owner's equity
    • CE4: Capital to Drawing account
  46. Net profit margin
    NPM = (net income/sales revenues) x 100
Card Set
ACCT 1-4.txt
ACCT 1-4