Accounting 1010 exam 1

sole proprietorship

a business owned by one person

partnership

A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.

limited-liability company

It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions

corporation

an association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.

qualities of Useful Information

Relevance and Faithful Representation...Comparability, verifiability, timeliness, understandability

asset

resources that are expected to produce a benefit in the future

liabilities

outside claims on assets

owners equity

inside claims on assets

income statement

reports revenues and expenses for a period of time

income statement

revenues-expenses=net income

statement of retained earnings

reports the portion of net income kept in the company over a period of years

statement of retained earnings

BE retained earnings+net income-dividends=ending RE

balance sheet

reports the financial positions of assets, liabilities, and owners' equity at a specific moment in time

balance sheet

Assets=Liabilities+Owners' Equity

statement of cash flows

reports cash receipts and cash payments for three categories of activities: operating activities, investing activities, and financing activities.

an account

the record of all the changes in a particular asset, liability, or owners; equity during a period. Every transaction affects at least 2 accounts.

classified balance sheet

separates current and long-term assets and liabilities

transaction analysis

an event that has a financial impact on a business that can be measured. At least two accounts are affected. The balance sheet in in balance for each transaction.

steps of the accounting cycle

analyze each transaction, general journal, general ledger, trial balance

the journal

records in one place the complete effect of a transaction on all accounts. provides a chronological record pf transactions. help prevent or locate errors. all debits must equal all credits.

the general ledger

contains all the assets, liabilities, and owners' equity accounts, including revenues and expenses, used by the business in the journal. keeps in one place all the information about changes in specific account balances

the unadjusted trial balance

lists accounts and their balances at a given time according to the general ledger. Total debts=total credits. may uncover errors in journalizing and posting if debits and credits don't equal. Useful in the preparing of financial statements. does not prove that all transactions have been recorded or that the ledger is correct.

accrual basis accounting GAAP

records revenues when earned and expenses when incurred in generating revenues, regardless of when cash is received or paid

cash accounting

records the impact of a business transaction only when cash receipts or cash payments have been exchanged.

the expense recognition principle

identify all expenses incurred during the period. measure and recognize expenses in the same period in which any related revenues are earned.

accrual accounting cycle steps

analyze transactions. journal. general ledger. unadjusted trial balance. make necessary adjusting entries and record in journal. post adjusting entries to the general ledger. prepare adjusted trial balance from general ledger. create financial statements. close the books.

adjusting the accounts

are necessary in accrual accounting because of timing differences between when cash is received and revenues is earned. never involve cash, always have at least one income statement account, and at least one balance sheet account.

deferrals, depreciation, and accruals

types of adjustments

deferrals

cash changes hands before rev or exp is recorded

accruals

rev or exp are recognized before cash is received

deferred expenses

expenses that are paid in cash in advance of receiving the benefit associated with the expense. Record as assets until benefit is received by either use, consumption, or time.

depreciation

allocation of a plant asset to an expense account over the asset's useful life

depreciation expense

expense account used during the period, income statement account.

accumulated depreciation

contra-asset account used to accumulate all amounts depreciated over the asset's useful life, balance sheet account.

accrued revenue

when goods and services are provided to a customer before the seller has been paid and a bill has been sent to the customer. current asset and revenue accounts are affected when exchange occurs.

accrued expenses

expenses incurred but not yet paid in cash or recorded during the period. expense and current liability accounts are affected during the period. (interest, salaries/wages, utilities, and taxes.)

adjusted trial balance

lists accounts and their final general ledger balances after adjusting entries have been made. total debts=total credits.

closing entry

'zeroes' out all revenue, expense and dividend accounts, and puts them in RE.

post closing trial balance

lists permanent accounts and their general ledger balances after closing entries have been made.

current ratio

current assets/current liabilities

debt ratio

total liabilities/total assets

net working capital

current assets-current liabilities