Bookkeeping and the Accounting Cycle

A comprehensive set of vocabulary flashcards covering basic bookkeeping terms, accounting principles, the accounting cycle, and financial statement formulas based on the lecture notes.

Chart of Accounts

A list of all of the accounts and sub-accounts used to categorize transactions.

Asset

Business owned resources.

Liability

What your business owes to others.

Equity

Net worth of a business.

The Accounting Equation

assets= liability+equity

Revenue

Total proceeds from sales.

Expense

Cost of doing business.

Debit

The left side of an account.

Credit

The right side of an account.

DEA

Dividend, Expenses, and Assets.

LER

Liabilities, Equity, and Revenues.

Full Disclosure Principle

The rule that any information that lenders or investors might need must be completely disclosed in financial notes.

Conservatism Assumption

The rule that requires a business to record potential losses immediately but ignore potential gains until they actually happen.

Materiality Principle

The rule that allows you to ignore tiny discrepancies as long as they do not mislead someone reading the financials.

Consistency Principle

The rule that requires a business to stick with the same accounting method over time once it has been chosen.

Monetary Unit Assumption

the rule that requires a business to use a single currency to record all financial documents.

Going Concern Assumption

A rule that assumes a business is stable enough to keep operating for the forseeable future (at least the next year).

The Accounting Cycle

a step-by-step process of identifying, analyzing, and recording financial events from transaction to financial statement closure.

Source Documents

Supporting documents for transactions such as bank statements, invoices, receipts, and payroll records.

General Ledger

A master record containing the detailed, line-by-line transaction history of every individual account

Unadjusted Trial Balance

a list of all general ledger account balances at a given date before adjusting entries are recorded

Adjusting Entries

journal entries made at the end of a period to update asset, liability, revenue, and expense.

Adjusted Trial Balance

a list of all account ending balances after adjusting journal entries have been recorded

Income Statement (P&L)

A financial report showing a business's total revenues and expenses over a specific period of time

Balance Sheet

A cumulative snapshot of everything a business owns and owes at an exact moment, built up from day one.

Statement of Equity

A report tracking the changes in business equity from the opening balance to the ending of the period.

Statement of Cash Flows

A report providing info about the sources and uses of physical cash by a business over time.

Periodicity Assumption

The assumption that a business can report its financial results and cash flows regularly, such as monthly, quarterly, or annually.

Revenue Recognition Principle

The principle that revenue must be recorded when a service or good is delivered, regardless of when cash is received

Accrual Accounting

a method that records revenue when earned and expenses when they happen, regardless of when cash moves

Matching Principle

the rule that expenses must be recorded in the same time period as the revenue they helped earn

Transaction Journal

A chronological record where financial transactions are first entered into the accounting system by date, showing debits and credits

Cash Receipt

The physical act of receiving cash from a customer, investor, or bank.

Purchase Expense

A temporary account used to track the cost of goods bought for resale during the current accounting period

Cash Disbursements

Payments made via cash, paper checks, debit cards, or wire transfers by a business.

Vendor

An entity that the business purchases products or services from, also known as a supplier.

Double-entry Bookkeeping

A system where every transaction is recorded twice, once as a debit and once as a credit.

T Chart

A visual tool used in bookkeeping where the left side is debit and the right side is credit.

Cash-basis Accounting

A system where revenue and expenses are recognized only when physical cash is received or paid out.

Formula for Net Income

total revenue- total expense= ?

GAAP- Generally Accepted Accounting Principles;

A standardized set of rules companies must follow when reporting financials.

Modified Cash-basis Accounting

A mix of accrual and cash-basis accounting that records daily cash flows but keeps long-term assets and liabilities on the balance sheet.

Accounts Payable

A liability account tracking money owed to suppliers, vendors, or creditors.

Accounts Receivable

An asset account tracking money owed to the business by its customers

Deferrals

An accounting entry where the cash is paid or received upfront, but the revenue or expense is delayed until the work is actually done.

Accruals

An accounting entry where the revenue or expense is recorded now because the action happened, but the cash will move later.

Depreciation

A method to spread out the cost of a physical asset over its expected useful lifespan.

Cost of Goods Sold

The direct costs of producing or manufacturing goods to generate revenue

Gross Profit Formula

total revenue- COGS= ?

Liquid Assets

Assets such as cash, business checking, or savings accounts.

Ending Owner's Equity Formula

beginning equity + owner’s investments + net income- owner’s draw= ?

Retained Earnings

The accumulated profits a businss keeps over time instead of paying them out to owners

Capital

cash or assets invested into a business by its owners to fund operations.

Operating Expenses

day-to-day cots of running the business, like rent, payroll and utilities

Operating Profit

profit earned from core business operations, before taxes and interest