Accounting exam 1A

Accounting

information and measurement system that identifies records and communicates an organizations business activities.

Fraud Triangle

Opportunity, Pressure, and Rationalization

Who are the owners of corporations?

Shareholders (stockholders)

Generally Accepted Accounting Principles GAAP

Wants info to have relevance and faithful rep.

Four basic financial statements

Balance sheet, income statement, cash flow statement, statement of returned earings

External users of accounting information?

Shareholders, lenders, external auditors, nonmanagerial employees, and regulators

Characteristics of a corporation

limited liability for its shareholders, perpetual existence, transferable ownership, and centralized management

Measurement/Cost principle

Info based on actual cost. Actual cost is considered objective

Characteristics of a partnership

Two or more people co-own a business

Expense recognition/matching principle

Company records its expenses incurred to generate the revenue reported

When is revenue properly recognized?

Revenue is recognized when it is earned

What is net income

the amount of money you take home after all taxes, expenses, and deductions are taken out

Liabilities

a companys financial obligations or debts owed to external parties

Accounting equation

Assets = Liabilities + Equity

Income statement

Net Income = Revenue - Expenses

Balance Sheet

Assets = Liabilities + Equity

Statement of cash flows

± Operating C.F. ± Investing C.F. ± Finance C.F. = Change in Cash

First step in the accounting process

Identifying and analyzing business transactions

Account Balance

the amount of money in a financial account

Double-entry accounting

Every financial transactions is recorded in at least 2 accounts. Balanced on both sides.

Assets=Debit, Liabilities and Equity=Credit. Debit/Credit

Asset Accounts

Cash, accounts receivable, prepaid insurance, land, buildings, equipment

Liability Accounts

Accounts Payable, wages payable, unearned revenue, notes payable

Equity accounts

+Retained earnings, -dividends, +Revenues, and -expenses

Source Documents

Identify and describe transactions entering the accounting system

Retained earnings

End R.E. = Beginning R.E. + Net Income - Dividends

Unearned Revenue

Advanced payment a business receives for goods or services that have yet to be delivered

Prepaid expenses

advanced payments made for goods or services that will be received or consumed in a future accounting period

General Ledger

record of all accounts and their balances

Chart of accounts

Organized index of all financial accounts used in a businesses general ledger

T-Account

visual representation of individual accounting ledgers used in double accounting. Debit/Credit

Posting

transferring financial transaction data from the journal to the ledger

General journal

financial transactions are initially documented before transferring to other accounts

trial balance

lists the balances of all general ledger accounts at a specific point in time. Organized into debit and credit columns

Debt Ratio

Debit Ratio = Total Liabilities/Total Assets