accounting ch. 2

separate entity assumption

business transactions are separate from owners transactions

going concern assumption

business will continue operating

monetary unit assumption

reports in national currency without inflation adjustments

historical cost principle

accounts are recorded at cash value on transaction date

assets

what a business owns

current assets

assets turned into cash within a year

noncurrent assets

assets turned into cash after a year

liabilities

what a company owes

current liabilities

obligations paid within a year

noncurrent assets

obligations paid after a year

shareholders equity

financing provided by business operations and owners

transaction

business exchange with measurable monetary impact

account

tracks transaction dollar effects on financial events

transaction analysis

transaction effects on the accounting equation

par value

stock value set by the company

accounting cycle

recording and adjusting transactions to prepare financial statements

debit

left side of account (a+)

credit

right side of account (l+ se+)

journal entry

transaction effects using equal debits and credits

t-account

individual account transactions using debits and credits

trial balance

all accounts with equal debits and credits

consolidated financial statement

assets and liabilities organized into current and noncurrent

cash

paper money (current asset, 1)

cash equivalents

t-bills, money market funds, cds (current asset, 1)

short-term investments

ownership of other company’s stocks sold within a year (current asset, 2)

accounts receivable

money customers owe the business (current asset, 3)

short-term notes receivable

money promised to be received within a year (current asset, 4)

interest receivable

interest earned on loans but not yet received (current asset, 5)

other receivables

money promised but not yet received (current asset, 6)

inventories

goods for sale to customers (current asset, 7)

supplies

unused items for business operations (current asset, 8)

prepaid expenses

advertising, insurance, rent paid in advance (current asset, 9)

property, plant, equipment

buildings, equipment, fixtures, land, vehicles (noncurrent asset, 1)

land

cost of land owned (noncurrent asset, ppe 1a)

buildings

cost of buildings owned (noncurrent asset, ppe 1b)

equipment

computers, furniture/fixtures, machines (noncurrent asset, ppe 1c)

accumulated depreciation

depreciation of ppe’s value (noncurrent asset, ppe 1e)

net property and equipment

total cost of ppe minus accumulated depreciation (noncurrent asset, ppe 1f)

long-term investments

ownership of other company’s stocks held more than a year (noncurrent asset, 2)

operating lease assets

right to use rented facilities during lease period (noncurrent asset, 3)

intangible assets

licenses, patents, trademarks (noncurrent asset, 4)

accounts payable

amount owed to suppliers (current liabilities, 1)

unearned revenue

unredeemed gift cards, revenue received before goods/services provided (current liability, 2)

accrued expenses payable

expenses incurred but not yet paid (current liability, 3)

salaries payable

fixed annual amount owed to employees (current liability, accrued expenses payable 3a)

wages payable

hourly amount owed to employees (current liability, accrued expenses payable 3b)

payroll taxes payable

unpaid employee wage taxes owed to gov, social security/medicare (current liability, accrued expenses payable 3c)

income taxes payable

income taxes owed on company profits to gov (current liability, accrued expenses payable 3d)

utilities payable

amount owed for electric, gas, telephone, water (current liability, accrued expenses payable 3e)

interest payable

interest owed on loans (current liability, accrued expenses payable 3f)

property taxes payable

taxes owed on property owned (current liability, accrued expenses payable 3g)

sales tax payable

sales tax from sales owed to gov (current liability, 4)

dividends payable

profits owed to shareholders (current liability, 5)

short-term notes payable

borrowed money owed within one year (current liability, 6)

current portion of long-term debt

long-term debt due within a year (current liability, 7)

current operating lease liabilities

lease payments owed within a year for rented facilities (current liability, 8)

long-term notes payable

borrowed money owed to a lender after a year (noncurrent liability, 1)

long-term debt

money owed after one year (noncurrent liability, 2)

bonds payable

money owed to bondholders of the company (noncurrent liability, 3)

mortgage payable

money owed to mortgage of property (noncurrent liability, 4)

long-term operating lease liabilities

lease payments owed after a year for rented facilities (noncurrent liability, 5)

pension liability

money owed to employees for retirement benefits (noncurrent liability, 6)

deferred income tax liability

income taxes owed in the future (noncurrent liability, 7)

preferred stock

dividend based ownership shares, no voting rights (stockholders equity, 1)

common stock

ownership shares issued by a company (stockholders equity, 1)

additional paid-in capital

money invested by owners through stocks minus stocks par value (stockholders equity, 2)

treasury stock

repurchased company shares that reduce equity w debit balance (stockholders equity, 3)

retained earnings

profits reinvested into the business, =revenue-expenses-dividends (stockholders equity, 4)

basic accounting equation

A=L+SE

dual effects

transaction has min 2 effects on basic accounting equation

transaction analysis steps

company received→ company gave→balanced