Bookkeeping Part 2 Final draft.

my personal completely revised bookkeeping flash cards

Balance Sheet

A snapshot of a business’s asset, liabilities, and equity on a specific date.

Income Statement

A report showing a business’s revenue, expenses, and profit or loss over a specific period, such as a month, quarter, or year.

Statement of Cash Flows

a report showing where cash comes from and where it goes during a specific period, such as month, quarter or year.

Current Assets

assets expected ot be converted to cash or used within on year, such as A/R, inventory and prepaid expenses.

Cash Equivalents

Short-term, highly liquid investments that can be quickly converted ino a know amount of cash.

Prepaid Expenses

expenses paid in advance for future goods or services

Marketable Securities

Short-term investments that can be easily bought or sold.

Notes Receivable

amounts owed to a business under a written promise to pay, typically within 12 months when classified as a current asset.

Property, Plant & Equipment (PP&E)

Long-term physical assets used in business operations, such as equipment, vehicles, buildings and land

Capital Investments

an investment made to inquire long-term assets, such as pp&e, for use in the business.

Depreciation

the process of spreading an asset's cost over its expected service life to reflect its ongoing use in operations

Land

A pp&e asset that is never depreciated.

Intangible Assets

Valuable business assets that have no physical form, such as patents, trademarks, and copyrights

Steps for Acquiring a New Asset

1. Identify the asset 2. Check for an existing account 3. Determine if a new account is needed 4. Record the asset in the general journal.

Operating Lease

a lease in which the lessee uses an asset without intending to own it at the end of the lease.

Capital Lease

a lease that is essentially treated like buying an asset because the lessee gets most of the benefits and responsibilities of owning it.

Natural Balance

The side of an account, debit or credit, where the account normally increases.

Asset Debit/ Credit Rules

Assets increase with debits and decrease with credits.

Cash Sale

A sale in which payment is completed immediately, such as by cash, check, credit card, or debit card.

Point-of-Sale (POS) System

A combination of hardware and software that records sales information automatically at the point of sale.

POS Verification Purpose

Comparing POS reports against the income statement (sales, tax, returns) to verify that the data is correct.

Credit Sale (invoicing)

A transaction allowing a customer to receive items and defer payment based on invoice credit terms

Invoice

An itemized bill sent to a credit customer that establishes a receivable in the general ledger.

Recording a New Invoice

When a customer is invoiced, debit Accounts Receivable and credit Sales Revenue.

Recording a Customer Payment on Invoice

When a customer pays an invoice, debit Cash and credit Accounts Receivable.

Double-Entry Rule

Every bookkeeping transaction must affect at least 2 accounts

Credit Purchase Rule

A purchase made on credit creates a liability because payment is owed later

Costs of Goods Sold (COGS)

the direct cost of producing or purchasing the goods a business sells during a specific period.

COGS Inclusions

raw materials, direct labor, and freight

COGS Exclutions

rent, marketing and utilities

Gross Profit

Total Revenue-COGS =?

Inventory Valuation

Assigning cost to inventory items on a balance sheet for financial reporting

FIFO (First-In, First-Out)

an inventory method that assumes the oldest inventory is sold first

LIFO (Last-In, First-Out)

an inventory mehtod that assumed the most recently purchased inventory is sold first.

AVCO (Average Cost Method)

an inventory method that assigns the same average cost to each unit of inventory.

AVCO Formula

Total Cost of Goods /Total units

Raw Materials Purchase Entry

Debit Raw materials (inventory), Credit Accounts payable or Cash.

Perpetual Inventory System

System continuously updated in real time as products move.

Perpetual Sale Entry

when a sale occurs, record the sale and immediately update COGS and inventory.

Periodic Inventory System & Cogs

An inventory system that updates inventory and calculates COGS at the end of the accounting period rather than continiously.

Lease

A contract that gives someone the right to use an asset for a set period in exchange for payment.

Lessor

provides the asset in a lease

lessee

uses the asset and makes the payments in a lease.

fixed assets

long-term assets held for business use rather than resale, such as property and equipment

inventory

goods a business holds for sale to customers.

periodic inventory system

an inventory system that updates inventory and calculates cogs at the end of the accounting period

periodic COGS formula

beginning inventory + purchases- ending inventory=?

inventory method consistency

once a business chooses an inventory valuation method it should use that method consistently.