Financial accounting || we can do this guys 🫶

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3 basic activities of accounting

3 basic activities of accounting

identification, recording and communication, which all are elements of bookkeeping

recording

consists of keeping a systematic, chronological diary of events measured in monetary values

basic accounting equation

assets = liabilities + stockholder’s equity

stockholder’s equity

the ownership claim on a corporation’s total assets, it is equal to total assets minus total liabilities

residual equity

the equity “left over” after creditors’ claims are satisfied

an account

is an individual accounting record of increases and decreases in a specific asset, liability, or stockholders' equity item

T-account

in its simplest form, an account consists of three parts: (1) a title, (2) ​a left or debit side, and (3) a right or credit side

debit

indicates the left side of the account

credit

indicates the right side of the account

balancing

the amount placed on the debit side one or more accounts must equal to the amount placed on the credit side of another account or accounts

journal

the book of original entry, it shows the debit and credit effects on specific accounts

simple entry

entries that involve only two accounts, one debit and one credit

compound entry

entries that require more than two accounts in journalizing

ledger

the entire group of accounts maintained by a company, provides the balance in each of the accounts as well as keeps track of changes in these balances

posting

the procedure of transferring journal entries to the ledger accounts

chart of accounts

a list of accounts and the account numbers that identify their location in the ledger

net income

revenues minus expenses

depreciation

the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner

plant/fixed assets

resources that have three characteristics, they have a physical substance, are used in the operations of a business, and are not intended for sale to customers

the historical cost principle

requires that companies record plant assets at cost at its cash or cash equivalent amount at the time of the transaction and should include all costs necessary to get the asset in place and ready for use

land improvements

structural additions with limited lives that are made to land

buildings

facilities used in operations, such as stores, offices, factories, warehouses, and airplane hangars

equipment

includes assets used in operations, such as store check-out counters, office furniture, factory machinery, delivery trucks, and airplanes

expenditures during useful life

costs for ordinary repairs, additions, or improvements

capital expenditures

additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset

depriciation methods

1. straight-line

2. units-of-activity

3. declining-balance

straight-line method

the simplest way to amortize a equipment's because it allocates an equal amount of interest over each accounting period in the debt’s life

units-of-activity method

useful life is expressed in terms of the total units of production or use expected from the asset, rather than as a time period

declining-balance method

produces a decreasing annual depreciation expense over the asset's useful life

instangible assets

are rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance