Accounting 1 Final Review

Assets

Resources owned by a business providing future economic benefits.

Liabilities

Obligations owed to external parties or creditors.

Equity

Owner's residual interest in the assets after liabilities.

Income Statement

Financial report showing revenues and expenses over a period.

Statement of Owner's Equity

Shows changes in owner's equity during a period.

Balance Sheet

Snapshot of assets, liabilities, and equity at a specific date.

Net Income

Total revenues minus total expenses over a period.

Net Loss

Total expenses exceed total revenues over a period.

Adjusting Entries

Entries made to update account balances before financial statements.

Closing Entries

Entries to transfer temporary account balances to permanent accounts.

Temporary Accounts

Accounts that are closed at the end of each period.

Permanent Accounts

Accounts that carry balances into future periods.

Trial Balance

List of all accounts and their balances at a point.

Adjusted Trial Balance

Trial balance after adjusting entries are made.

Post-Closing Trial Balance

Trial balance after closing entries are recorded.

Cost of Goods Sold

Direct costs attributable to the production of goods sold.

Gross Profit

Sales revenue minus cost of goods sold.

FIFO

Inventory method where oldest costs are used first.

LIFO

Inventory method where newest costs are used first.

Weighted Average

Inventory method using average cost of all items.

Bank Reconciliation

Process of matching bank statement with company records.

Allowance for Doubtful Accounts

Estimate of uncollectible accounts receivable on financial statements.

Depreciation

Allocation of asset cost over its useful life.

Current Liability

Obligation due within one year or operating cycle.

Long-term Liability

Obligation due beyond one year.

Earnings Per Share

Net income divided by number of outstanding shares.

Price Earnings Ratio

Market price per share divided by earnings per share.

Assets

Resources owned by a business, increasing on debit.

Expenses

Costs incurred by a business, decreasing equity.

Drawing

Withdrawals by owners from business funds.

Liabilities

Obligations owed to outside parties, increasing on credit.

Revenues

Income generated from business activities, increasing equity.

Capital

Owner's equity in the business, increasing on credit.

Accounting Equation

Assets = Liabilities + Equity.

Journal Entry

Record of financial transactions in accounting.

Utilities Expense

Cost of utilities, decreases equity by $100.

Cash

Asset account, decreases by $100 when credited.

Debits

Entries on the left side of T-accounts.

Credits

Entries on the right side of T-accounts.

Income Statement

Reports revenues and expenses over a period.

Statement of Owner's Equity

Shows changes in owner's capital account.

Balance Sheet

Snapshot of assets, liabilities, and equity.

Net Income

Revenues exceed expenses, resulting in profit.

Net Loss

Expenses exceed revenues, resulting in loss.

Beginning Balance

Initial amount in an account at the start.

Additions

Increases to capital from net income or contributions.

Deductions

Decreases to capital from losses or withdrawals.

Ending Balance

Final amount in an account after transactions.

Four Accounting Principles

Fundamental guidelines governing financial reporting.

Measurement Principle

Valuation based on relevant financial measures.

Revenue Recognition Principle

Revenue recognized upon delivery of goods/services.

Expense Recognition Principle

Expenses recorded in the same period as revenues.

Full Disclosure Principle

All relevant operational information must be reported.

Adjusting Entries Purpose

Align expenses and revenues with accounting periods.

Closing Entries Purpose

Reset temporary accounts for the next period.

Temporary Accounts

Zeroed out each period, starting fresh.

Permanent Accounts

Build upon themselves across accounting periods.

Accounting Cycle Steps

Analyze, journalize, post, adjust, close, prepare statements.

Purchase of Merchandise (Cash)

Dr. Inventory, Cr. Cash for cash purchases.

Purchase of Merchandise (Credit)

Dr. Inventory, Cr. Accounts Payable for credit purchases.

Sale of Merchandise on Credit

Record revenue when goods are sold on credit.

Receipt of Payment

Record payment against accounts receivable.

Discount Calculation

1% discount if paid within 20 days.

FIFO Method

First-in, first-out inventory valuation method.

LIFO Method

Last-in, first-out inventory valuation method.

Weighted Average Method

Average cost method for inventory valuation.

GAAP Approved Methods

FIFO, LIFO, and weighted average methods allowed.

Perpetual Inventory System

Records cost of goods sold at each sale.

Periodic Inventory System

Records cost of goods sold at period's end.

Internal Control Principles

Require verification, establish responsibilities, maintain records.

Bank Reconciliation

Process to match cash books with bank balance.

Deposits in Transit

Deposits not yet reflected in bank balance.

Outstanding Checks

Checks issued but not yet cleared by the bank.

NSF Checks

Checks returned due to insufficient funds.

Notes Receivable Collection

Journal entry for cash received from notes.

Allowance for Doubtful Accounts

Contra-asset reducing accounts receivable value.

Depreciation

Allocating asset cost over its useful life.

Straight-Line Depreciation

(Cost - Salvage Value) / Useful Life.

Depletion

Cost allocation of natural resources to expense.

Amortization

Spreading intangible asset costs over time.

Current Liability

Obligations due within 12 months.

Long-Term Liability

Obligations due beyond 12 months.

Interest Calculation

Interest = Principal x Rate x (Days/360).

Corporation Advantages

Separate legal existence and transferable ownership.

Financial Statements Comparison

Corporations use Statement of Shareholder's Equity.

Retained Earnings

Net income retained in the corporation.

Issuance of Stock

Journal entry: Dr. Cash, Cr. Common Stock.

Dividends

Payments to stockholders from corporation's income.

Dividend Issuance Process

Entries made on declaration and payment dates.

Earnings Per Share (EPS)

Net income attributable to common stockholders/average shares.

Price Earnings Ratio

Market price per share divided by EPS.

Journal Entry Components

Know accounts involved and their debit/credit nature.