Accounting Test 1

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Author:
SeanHatfield
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283142
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Accounting Test 1
Updated:
2014-09-15 17:29:29
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Accounting Business Entrepreneurship Finance
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Accounting
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Accounting test 1
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  1. 2 kinds of decision makers:
    Internal and external
  2. 3 forms of business:
    • Sole proprietorship
    • partnership
    • corporation
  3. Assets-
    Liabilities-
    Stockholders' Equity-
    Revenues-
    Expenses-
    -What you own. (land, cash, supplies)

    -What you owe. (Notes payable, Accounts payable, Salaries payable)

    -difference of own and owe. owner’s residual claim against the assets of the company. (Retained earnings, common stock)

    -income.

    -costs.
  4. Financial statement order:
    -Income Statement (Revenues - Expenses = Net income

    •     -Statement of Retained Earnings (Net Income - Dividends = Ending balance for Ret. Earn.)
    •        
    •         -Balance Sheet (Assets = Liabilities + Owner's Equity)
    •            
    •             -Statement of Cash Flows (Explains the sources and uses of cash for the period
  5. FASB-
    GAAP-
    SEC-
    IASB-
    -Financial Accounting Standards Board: Creates the rules and standards that govern financial accounting.

    -Generally accepted accounting principles: Establishes the rules for recording transactions and preparing financial statements.

    -Securities Exchange Commission: Oversees the US financial markets.

    -International Accounting Standards Board: Creates international financial reporting standards.
  6. Economic Entity Assumption-

    Going Concern Assumption-

    Monetary Unit Assumption-

    Cost Principle-
    -Requires an organization to be a separate economic unit.

    -Assumes that an entity will remain in operation for the foreseeable future.

    -Assumes that the financial statements are recorded in a monetary unit.

    -States that acquired assets and services should be recorded at their actual cost.
  7. Transaction Analysis-
    • How does each financial transaction affect the basic accounting equation?
    • (bought office supplies for cash: Increase asset for supplies, decrease asset for cash)
  8. Accounting Equation:
    Assets = Liabilities + Equity
  9. Accounting Cycle:
    Results in the creation of the financial statements.

    • step 1: Transaction Analysis
    • step 2: Make journal entries
    • step 3: Post the journal entries to the accounts they affect
    • Step 4: Create the Trial Balance
  10. Double entry accounting-
    Debit-
    Credit-
    Source document-
    -Transactions always have two impacts on the accounting equation. These “double” entries help keep the accounting equation in balance.

    -left of account

    -right of account

    -
  11. Journal Entries-
    Record of a financial transaction; has an equal debit and credit; records the affect (increase or decrease) of a financial transaction on the two accounts involved.
  12. Trial Balance-
    Listing of all accounts and their balances; shows the equality of the debit and credit normal balance accounts.
  13. General ledger-
    General Journal-
    Chart of accounts-
    -Book where the accounts are kept.

    -Book where the journal entries are recorded.

    -List of all the accounts of a business.
  14. Debt Ratio-
    shows the proportion of assets financed with debt.
  15. Cash Basis Accounting vs Accrual Basis Accounting:
    Cash Actg- Revenue is recorded when cash is received.

    Accrual Actg- Revenue is recorded when it is earned.
  16. Time Period Concept-
    Fiscal Year-
    -Assumes that a business’s activities can be sliced into small segments and that financial statements can be prepared for specific time periods, such as a month, quarter, or year.

    -Any twelve month period.
  17. Revenue Recognition Principle-
    Matching Principle-
    -Revenue should be recorded when it is EARNED

    -Expenses are recorded when they are incurred during the period. Expenses are matched at the end of the period against the revenues for that period.
  18. Adjusting Journal Entries-
    • Adjustments to the Trial Balance are made by recording actual Adjusting Journal Entries. 
    • Each Adjusting Journal Entry will adjust a balance sheet account and an income statement account.
  19. Adjusting Journal Entry types:
    • 1.) Prepaid Expenses/Assets: Prepaid rent, supplies, depreciation.
    • 2.) Unearned Revenues: Unearned service revenue.
    • 3.) Depreciation
    • 4.) Accrued Expenses: Salary exp, interest exp.
    • 5.) Accrued Revenues: Interest revenue
  20. Adjusted Trial Balance-
    After journalizing and posting all the adjusting journal entries at the end of the fiscal period, a new adjusted trial balance is prepared.
  21. Temporary Accounts:
    The accounts that are closed or zeroed out in the closing journal entries.

    • -Revenues
    • -Expenses
    • -Dividends
  22. Permanent Accounts:
    The accounts that are not zeroed out in the closing entries

    • -Assets 
    • -Liabilities
    • -Stockholders' equity (common stock and retained earnings accounts)
  23. 4 Closing entries:
    • 1.) Close the revenue accounts to Income Summary
    • 2.) Close the expense accounts to Income Summary
    • 3.) Close Income Summary to Retained Earnings
    • 4.) Close Dividends to Retained Earnings

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