Resources owned or controlled by a company "receivable"
creditor's claims on assets "payable"
owner's claims on assets.
Example of Revenues
sales of products
facilities rented to others
commision from services
Examples of Expenses
use of supplies
Accounts Receivable (sometimes called credit sales or sales on account)
Supplies (assets until used, then expenses)
Equipment (office equipment, store equipment, buildings, land)
Prepaid Accounts (such as prepaid insurance, prepaid rent, club memberships)
Define Income Statement
describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities
Define Statement of Owner's Equity
explains changes in equity from net income (or loss) and from any owner investments and withdrawals over a period of time
Define Balance Sheet
describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time
Define Statement of Cash Flows
identifies cash inflows (receipts) and cash outflows (payments) over a period of time
Statement Of Cash Flows
Statement of Owner's Equity
Return on Assets = Net Income / Average Total Assets
Generally accepted accounting principles: rules and concepts that financial accounting practice is governed by.
Financial Accounting Standards Board: is the private group that sets both broad and specific principles
Securities and Exchange Commission: is the government group that establishes reporting requirements for companies that issue stock to the public.
International Accounting Standards Board: issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices. Helps create more harmony among accounting practices of different countries.
accounting information is supported by independant, unbiased evidence
accounting information is based on actual cost
accounting information reflects an assumption that the business will continue operating instead of being closed or sold
Monetary Unit Principle
means that we can express transactions and events in monetary, or money, units.
Revenue recognition principle
provides guidance on when a company must recognize revenue
Business Entity Principle
means that a business is accounted for separately from other business entities, including its owner
SOX, helps burb financial abuses at companies that issue their stock to the public
identify and describe transactions and events entering the accounting process
is a record containing all accounts used by a company
Unearned Revenue (examples: magazine subscriptions, gift certificates, etc)
Accrued Liabilities (amount owed that are not yet paid such as wages payable, interest payable, or taxes payabe)
left side. Dr.
right side. Cr.
list of accounts and their balances at a point in time
Debt Ratio Equation
Total Liabilities / Total Assets
Time Period Principle
assumes that an organization's activities can be divided into specific time periods such as a month, three-month quarter, a six-month interval, or a year called accounting (reporting) periods
Accrual Basis Accounting
uses the adjusting proces to recognize revenues when earned and expenses when incured
Cash Basis Accounting
recognizes revenues when cash is received and records expenses when cash is paid
aims to record expenses in the same accounting period as the revenues that are earned as a result of these expenses
is recorded to bring an asset or liabilities account balance to its proper amount
(Deferred) refers to items paid for in advance of receiving their benefits
refers to long-term tangible assets used to produce and sell products and services. Eventually wear out.
is an account linked with another account, it has an oppoiste normal balance, and is reported as a subtraction from that other account's balance.
refers to cash received in advance of providing products and services.
refers to cost that are incurred in a period but are both unpaid and unrecorded.
refers to revenues earned in a period that are both unrecorded and not yet receiced in cash (or other assets)
Unadjusted Trial Balance
list of accounts and balances prepared before adjustmesnt are recorded
Adjusted Trial Balance
a list of accounts and balances prepares agter adjusting entries have been recorded and posted to the ledger.