Accounting Basics

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Accounting Basics
2015-05-20 17:35:39

Help prepare for future accounting classes
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  1. What is the basic accounting equation?
    Assets= liabilities+ stockholders' (or owner's) equity
  2. 1. What is income statement?
    2. What two things does it include?
    • 1. A financial statement that measures a company's financial performance over a specific accounting period.
    • (show how profitable)
    • 2. Revenue and Expenses
  3. cash basis of accounting vs. accrual basis of accounting
    • -cash basis- revenues are reported on the income statement when the cash is received
    • - accrual basis- expenses are matched with the related revenues and/or are reported when the expense occurs, not when cash is paid (recorded when earned)
  4. What is revenue recognition principles?
    The accounting guidelines requiring that revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected
  5. What is matching principle?
    The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval
  6. The difference ("net") between the revenues and expenses is referred to as what?
    bottom line and is labeled as either Net Income or Net Loss
  7. What is a balance sheet?
    • a financial statement that reports the amount a company's assets, liabilities, and stockholder's (or owner's) equity at a specific point in time
    • -(think of it as snapshot of a company's financial position at a given moment)
  8. What is a prepaid expense?
    • - a current asset representing amounts paid in advance for future expenses.
    • -as the expenses are used or expired, expense is increased and prepaid expense is decreased
  9. Insurance Expense
    • - the amount of insurance that was incurred/ used up/ expired during the period of time appearing in the heading of the income statement.
    • - The amount of insurance premiums that have not yet expired should be reported in the current asset account prepaid insurance
  10. What are cost principles?
    The accounting guideline requiring amounts in the accounts and on the financial statements to be the actual cost rather than the current value.
  11. What is conservatism?
    This accounting guideline states that if doubt exists between two acceptable alternatives (in other words the accountant needs to break a tie), the accountant should choose the alternative that will result in a lesser asset amount and/or a lesser profit.
  12. cost principle vs. conservatism
    • cost principle- generally prevents assets from being reported at more than cost
    • vs.
    • conservatism- might require assets to be reported at less than their cost.
  13. What are 4 events that affect owner's equity?
    • 1. investments (recorded in "Capital" or "common stock") (CS used for corporation accounts)
    • 2. withdrawals- (recorded in "drawing" or "dividends"
    • 3. revenue (recorded in "revenue" accounts)
    • 4. expenses (recorded in "expense" accounts)
  14. What's the difference between notes payable and Accounts Payable?
    • -Notes payable involves a written promissory note. Ex: company wishes to borrow $100,000 from its bank, the bank will require company officers to sign a formal loan agreement before the bank provides the money.
    • -an invoice or transaction that did not involve a promissory note. Will be recorded as accounts payable
  15. What is unearned revenue?
    A liability account that reports amounts received in advance of providing goods or services. When the goods or services are provided, this account balance is decreased and a revenue account is increased.
  16. What are service revenues?
    Under the accrual basis of accounting, the Service Revenues account reports the fees earned by a company during the time period indicated in the heading of the income statement. Service Revenues include work completed whether or not it was billed. Service Revenues is an operating revenue account and will appear at the beginning of the company's income statement.
  17. What do accountants often refer to Stockholders' Equity as?
    • the difference (or residual) of assets minus Liabilities.
    • Stockholders' equity is also the "book value" of the corporation
  18. If company is the sole proprietorship it is referred to as what?
    Owner's equity
  19. What are some sections you may see under Stockholders' equity?
    • -common stock
    • -paid-in capital in excess of Par Value- common stock
    • -preferred stock
    • - retained earning
    • - current year's net income
  20. What effect does revenue and liabilities have on stockholders' equity?
    • Revenue increases it
    • liabilities decreases it
  21. What is double entry?
    each and every one of a company's transactions will result in an amount recorded into at least two of the accounts in the accounting system. 
  22. what are chart of accounts?
    A listing of the accounts available in the accounting system in which to record entries.
  23. Balance sheet accounts and list examples of all 3 accounts
    • -Asset accounts- (ex: cash, accounts receivable, supplies, equipment)
    • -Liabilities accounts- (ex: notes payable, accounts payable, wages payable)
    • -Stockholders’ equity- (common stock, retained earnings)
  24. Income statement accounts:
    • -Revenue accounts- (ex: service revenues, investment revenues)
    • -Expense accounts- (ex: wages expense, rent expense, depreciation expense) 
  25. Debits and credits
    • Debits means left (increase)
    • credits means right (decrease) 
  26. Example: when a company receives cash you would _____ what account?
    When a company pays cash you would _______ what account?
    • -company receives cash, the cash account is
    • debited
    • -company pays cash, the cash account is credited
  27. revenue-expense=
    net income
  28. The listing of all of the accounts available for use in a company's accounting system is known as the
    charts of account
  29. revenue accounts are what,
    credited or debited?
    Revenues accounts are credited when the company earns a fee (or sells merchandise) regardless of whether cash is received at the time.
  30. The basis or method of accounting that is less effective than the accrual basis in measuring profitability
  31. The basis or method of accounting where expenses are reported as they are incurred rather than when they are paid.
  32. When a company provides a service and allows the customer to pay in 30 days, the account to be debited is Accounts 
  33. The book value of an asset or liability is also known as the ________________ amount.
  34. The systematic allocation of the cost of equipment and buildings used in a business from the balance sheet to the income statement over the useful life of the asset.
  35. The financial statement that reports the financial position of a company as of an instant or point in time is the ________________ sheet.
  36. Resources owned by a company.
  37. The balance sheet classification that reports the obligations of the company.
  38. The basic accounting ______________ is Assets = Liabilities + Owner's Equity.
  39. An entry to the left-side of an account.
  40. Every transaction that gets recorded in the general ledger involves ______ or more accounts.
  41. Some people refer to the income statement as the profit and ______ statement.
  42. Accounting software facilitates recording business _______________.
  43. The title of the asset account that reports the unexpired cost of insurance premiums that have already been paid is _____________ Insurance.
  44. The balance sheet reports amounts that apply at a particular ____________ in time.
  45. The financial statement that reports the revenues and expenses of a company for a period of time is the ________________ statement.
  46. One part of stockholders' equity is _____________ earnings.
  47. A major element of the income statement that reports the costs that have been used in order to obtain revenues during the accounting period.
  48. An entry to the right-side of an account.
  49. Known as the book of original entry, it lists transactions in order by date.
  50. In the case of two acceptable alternatives, this guideline directs the accountant to select the alternative that results in less profit and less asset (or more liability).
  51. Because the accounting system used in the U.S. requires at least one debit and one credit, we refer to the accounting system as _____________-entry.
  52. This component of Property, Plant & Equipment is not depreciated.
  53. The required financial statements include the balance sheet, the income statement, and the statement of cash __________.
  54. The net income of a company is sometimes referred to as the ____________ line (of the income statement).
  55. The owner's equity section of a corporation's balance sheet is known as shareholders equity or _______________________ equity.
  56. Depreciation is an allocation technique; it is not a ________________ technique.
  57. Most liability accounts have this word as part of their title.
  58. The accounting guideline that prevents assets from being reported at amounts greater than their cost is the __________ principle.
  59. A major element of the income statement that reports fees earned and sales of products.
  60. Sometimes inventory is reported at an amount that is __________ than cost.
  61. Generally accepted accounting guidelines are referred to as _______________.
  62. The title of the liability account that reports amounts that were received by the company before they were earned is ________________ Revenues.
  63. The accrual basis of accounting is more effective than the cash basis in reporting the ________________ of a business.
  64. The 'books' of the company that contains all of the accounts is the general _______________.
  65. A listing of all of the accounts available in the general ledger is a __________ of accounts.
  66. The income statement and the statement of cash flows report amounts covering a ___________ of time.
  67. If a corporation's stock is publicly traded, its net income must also be reported on the income statement as earnings per ___________.
  68. When a sale is made on credit, it will also increase the company's Accounts ____________.
  69. The cost of equipment minus its accumulated depreciation is its _________ or carrying value.
  70. Cash and other assets that will turn to cash within one year of the balance sheet date are reported as _____________ assets.
  71. The ________-basis of accounting requires that revenues be reported on the income statement when they are earned and expenses be reported when they are incurred.
  72. GAAP is the acronym for _______________ accepted accounting principles.
  73. The accounting term used to describe an entry made on the left side of a T-account.
  74. SG&A is the acronym for ____________, general and administrative expenses.
  75. The accounting equation remains in balance because of __________-entry accounting.
  76. The financial statement that reports revenues, gains, expenses, and losses is the _________ statement.
  77. Amounts owed to employees and suppliers are reported as _______________ on the balance sheet.
  78. Generally, assets are reported at their historical ______ or less.
  79. The amounts a company owes its suppliers are reported in the account Accounts __________.
  80. The financial statement also known as the statement of financial position is the _________ sheet.
  81. An entry on the right side of a T-account.
  82. The entry to record depreciation is first entered in the ___________ journal.
  83. The inventory cost flow assumption that results in less reported profits and taxable income during years of continuously rising costs is _______-in, first-out.
  84. Insurance premiums that had been paid in advance but have expired in the current period should be reported in the current period as Insurance __________
  85. A manufacturer's or a merchandiser's goods on hand are reported in this asset account.
  86. Costs that are matched with revenues in the current period.
  87. Fees that a company has received from its customers in advance of being earned are deferred to the balance sheet account ____________ Fees.
  88. Sales minus the cost of goods sold is the __________ profit.
  89. The type of balance sheet account used to report cost of prepaid insurance premiums that have not expired as of the balance sheet date.
  90. The _______ to the financial statements will disclose the company's significant accounting policies
  91. Allocating the cost of a long-lived asset to expense over its useful life is known as __________________.
  92. A debit to a liability account will _____________ (increase, decrease) the normal balance in the account.
  93. A list of all of the names of the accounts in the general ledger (without account balances) is a ________ of accounts.
  94. The minimum number of accounts affected when each transaction is recorded.
  95. Stockholders' ________ is the difference between a corporation's assets and liabilities.
  96. The bottom line of the income statement is ______ income.
  97. A long-term asset used in a business that is not depreciated.
  98. The financial statements that are issued between a company's annual financial statements are referred to as _____________ financial statements.
  99. The accounting ___________ is Assets = Liabilities + Owner's (Stockholders') Equity.
  100. The accruing of expenses that pertain to the revenues being reported is required because of the ___________ principle.
  101. The financial statement that explains how cash and cash equivalents have changed during an accounting period is the statement of ________ flows.
  102. The balance sheet reports amounts as of a ________ in time.
  103. The basic accounting ______________ include cost, matching, full disclosure, etc.
  104. The heading of the income statement and the cash flow statement indicates the _________ of time covered by the financial statement.