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What are business activities? (2)
- events that occur when a business aquires, uses or sells resources
- claims to these resources
What are the three types of business activities?
What are financing activities?
When owners/creditors provide resources to a business, and when a business transfers resources to owners/creditors
What are Investing Activities?
The aquisition and disposal of long term, non-current resources used by a business
What are operating activities?
Activities that are necessary to aquire and sell goods and services
What does accounting do for business activities?
- Provides a basis for describing them
- Measures, records, reports and analyses them using accounts
What is an account?
An account is a record of increases and decreases in the dollar amount associated with a specific resource or activity.
What does GAAP stand for?
Generally Accepted Accounting Principles
What are the five Basic (GAAP) Accounting concepts?
- 1. Entity Concept
- 2. Transactions Concept
- 3. Source Documents
- 4. Monetary Unit Concept
- 5. Historical Cost Concept
What is the entity concept?
An entity is considered seperate from its owners and other companies
therefore, an owners personal financial activities are not included
What is the transaction concept?
A transaction is the exchange of property or services between the business and another entity
therefore, must define the 'parties' involved in every transaction
What are source documents?
Business records used as evidence that a transaction has occured (eg contract or receipt)
What is the monetary unit concept?
All transactions are quantified and recorded in terms on their monetary value ($)
What is the historical cost concept?
A business records its transactions based on the dollars exchaged (the cost) at the time the transaction occurs
What is the accounting equation?
A = L + OE
What is an asset, liability and owners equity?
- Asset - resources controlled by the business
- Liability - the claims of creditors to a business' resources
- Owners Equity - an owners calims on the business' assets
Where do financial funds come from? (2)
- OE - Contributions made by owners to the business and any profits that are kept within the business (retained earnings)
- L - borrowings from external parties
What is a revenue and how does it affect the accounting equation?
- Revenue = the amount a business expects to receive through the sale of goods and services (increases owners equity)
- Expense = the amount of resources consumed through aquiring and selling goods/services (decreases owners equity)
What is 'posting'?
The process of transferring all transactions from the general journal to specific accounts in the general ledger
What is the General Ledger?
A file in which each of a business' accounts and the balances of these accounts are maintained
What are the three rules of double entry accounting?
- every transaction has at least one Dr entry and one Cr entry
- one transaction may require a simple, compound or set of entries
- total debits must equal total credits for every transaction (the accounting equation must balance)
What is an unajusted trial balance? What does it consist of and tell us?
- Trial Balance - arithmetical check on accuracy of the ledger (ensure that drs = crs)
- It lists all account names and balances