accounting

What is Accounting?

The process of recording economic activities and generating reports for decision makers.

What are the three business activities?

Financing, Investing, Operating.

What are Financing Activities?

Activities that get cash into the business.

What are Investing Activities?

Activities involving the purchase of long-term assets used in the business.

What are Operating Activities?

Day-to-day activities of running the business.

What are the four financial statements in order?

Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows.

What is the Accounting Equation?

Assets = Liabilities + Stockholders' Equity.

What is the Net Income formula?

Revenue - Expenses = Net Income.

What is the Retained Earnings formula?

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings.

What does DEALER stand for?

Dividends, Expenses, Assets, Liabilities, Equity, Revenues.

Which accounts have normal debit balances?

Dividends, Expenses, Assets.

Which accounts have normal credit balances?

Liabilities, Equity, Revenues.

What does GAAP stand for?

Generally Accepted Accounting Principles.

What are the main steps of the accounting cycle?

Analyze, Journalize, Post, Trial Balance, Adjusting Entries, Financial Statements, Closing Entries.

What is an Asset?

A resource owned by the company that provides future economic benefit.

What is a Liability?

An obligation owed by the company.

What is Equity?

The owner's claim to the assets of the business.

What is a Current Asset?

An asset expected to be used or converted to cash within one year.

What is a Current Liability?

A liability that must be paid within one year.

What is PPE?

Property, Plant, and Equipment that is used in operations and lasts more than one year.

What is an Intangible Asset?

An asset without physical substance.

What is Common Stock?

Amount invested into the business by owners.

What are Retained Earnings?

Profits kept in the company rather than distributed.

When is Revenue recognized?

When the performance obligation has been satisfied.

What is the Expense Recognition Principle?

Match expenses with the revenues they help generate.

What three questions help solve adjusting entries?

What was the original entry? What changed? How do I fix it?

What adjusting entry is made when prepaid insurance expires?

Debit Insurance Expense; Credit Prepaid Insurance.

What adjusting entry is made when supplies are used?

Debit Supplies Expense; Credit Supplies.

What adjusting entry is made when depreciation is recorded?

Debit Depreciation Expense; Credit Accumulated Depreciation.

What adjusting entry is made when unearned revenue becomes earned?

Debit Unearned Revenue; Credit Service Revenue.

What adjusting entry is made when salaries are accrued?

Debit Salaries Expense; Credit Salaries Payable.

What are the four closing entries in order?

Close Revenues, Close Expenses, Close Income Summary, Close Dividends.

How do you close revenues?

Debit Revenues; Credit Income Summary.

How do you close expenses?

Debit Income Summary; Credit Expenses.

How do you close Income Summary when there is net income?

Debit Income Summary; Credit Retained Earnings.

How do you close dividends?

Debit Retained Earnings; Credit Dividends.

What is a merchandising company?

A company that buys and sells merchandise.

What journal entry records the purchase of inventory on account?

Debit Inventory; Credit Accounts Payable.

What journal entry records the sale of inventory on account?

Debit Accounts Receivable; Credit Sales Revenue.

What second journal entry is required when inventory is sold?

Debit Cost of Goods Sold; Credit Inventory.

What journal entry records customer payment on account?

Debit Cash; Credit Accounts Receivable.

What journal entry records cash received before work is performed?

Debit Cash; Credit Unearned Revenue.

What journal entry records issuing stock for cash?

Debit Cash; Credit Common Stock.

What journal entry records dividends paid?

Debit Dividends; Credit Cash.

What does FOB Shipping Point mean?

Buyer pays shipping and ownership transfers when shipped.

What does FOB Destination mean?

Seller pays shipping and ownership transfers when received.

What does 2/10, n/30 mean?

2% discount if paid within 10 days; otherwise full amount due in 30 days.

What is the difference between perpetual and periodic inventory systems?

Perpetual updates inventory continuously; Periodic updates inventory at period end.

What is Cost of Goods Purchased (COGP)?

Purchases - Purchase Returns and Allowances - Purchase Discounts + Freight-In.

What is Cost of Goods Available for Sale (COGAFS)?

Beginning Inventory + Cost of Goods Purchased.

What is Cost of Goods Sold (COGS)?

Cost of Goods Available for Sale - Ending Inventory.

What is Net Sales?

Sales - Sales Returns and Allowances - Sales Discounts.

gross profit rate formula

Gross profit / Net sales

What is Working Capital?

Current Assets - Current Liabilities.

What is the Current Ratio formula?

Current Assets ÷ Current Liabilities.

What is the Debt-to-Assets Ratio formula?

Total Liabilities ÷ Total Assets.

What is the Profit Margin formula?

Net Income ÷ Net Sales.

What is the Earnings Per Share (EPS) formula?

(Net Income - Preferred Dividends) ÷ Average Common Shares Outstanding.

What is Accumulated Depreciation?

A contra asset account with a normal credit balance.

Which statement contains Revenues and Expenses?

Income Statement.

Which statement contains Assets, Liabilities, and Equity?

Balance Sheet.

Which statement contains Retained Earnings and Dividends?

Statement of Retained Earnings.

Supplies

Account classified as Current Asset

Accounts Payable

Account classified as Current Liability

Unearned Revenue

Account classified as Liability

Common Stock

Account classified as Equity

Sales Revenue

Account classified as Revenue

Utilities Expense

Account classified as Expense

Inventory

Account classified as Current Asset

Accumulated Depreciation

Account classified as Contra Asset

Current Ratio

Higher is generally better

Working Capital

Higher is generally better

Debt-to-Assets Ratio

Lower is generally better

Profit Margin

Higher is generally better

What is Net Income used for next?

Statement of Retained Earnings

What statement comes after the Income Statement?

Statement of Retained Earnings

What statement comes after the Statement of Retained Earnings?

Balance Sheet

Average Common Shares Outstanding

(Beginning common Shares + Ending common Shares) ÷ 2

return on assets formula

net income/total assets

free cash flow formula

cash from operations - dividends paid - capital expenditures

debt to total assets formula

total liabilities / total assets

Cash basis accounting

An accounting method that records revenues and expenses only when cash physically enters or leaves the bank account.

Accrual Basis Accounting

An accounting method that records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands