Accounting Unit Exam - Business

Accounting

the recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions

Accounting Cycle

1. Analyze source documents

2. record transactions in journals

3. transfer journal entries to ledger

4. take a trail balance

5. prepare financial statements

6. analyze financial statements

bookkeeping

the recording of business transactions

journal

the record book/computer program where bookkeepers record financial data from transaction documents

double-entry bookkeeping

the practice of writing every business transaction in two places

ledger

a specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place

trial balance

a summary of all the financial data in the account ledgers that ensures the figure are correct and balanced

financial statement

a summary of all the transactions that have occurred over a particular period

balance sheet

reports the firm’s financial condition on a specific date

income statement

summarizes revenues, cost of goods sold, and expenses for a specific period and highlights the total profit or loss the firm experienced during that period

statement of cash flows

provides a summary of money coming into and going out of the firm

fundamental accounting equation

Assets = Liabilities + Owner’s Equity

assets

economic resources (things of value) owned by a firm

liquidity

the ease with which an asset can be converted into cash

current assets

items that can or will be converted into cash within one year

fixed assets

assets that are relatively permanent, such as land, buildings, and equipments

intangible assets

long-term assets (patents, trademarked, copyrights) that have no real physical form but do have value

liabilities

what the business owes to others (debts)

accounts payable

current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for

notes payable

short-term or long-term liabilities that a business promises to repay by a certain date

bonds payable

long-term liabilities that represent money lent to te firm that must be paid back

owners’ equity

the amount of the business that belongs to the owners minus any liabilities owed by the business

retained earnings

the accumulated earnings from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends

net income or net loss

revenue left over after all costs and expenses, including taxes, are paid

costs of goods sold/manufactured

a measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale

gross profit

how much a firm earned by buying (or making) and selling merchandise

depreciation

the systematic write-off of the cost of a tangible asset over its estimated useful life

cash flow

the difference between cash coming in and cash going out of a business

ratio analysis

the assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from te firm’s financial statements

financial accounting

accounting information and analyses prepared for people outside the organization

annual report

a yearly statement of the financial condition, progress, and expectations of an organization

private accountant

an accountant who works for a single firm, government agency, or nonprofit organization

public accountant

an accountant who provides accounting services to individuals or businesses on a fee basis

CPA

an accountant who passes a series of examinations established by the American Institute of Certified Public Accountants

managerial accounting

accounting used to provide information and analyses to managers wishing the organization to assist them in decision making

auditing

the job of reviewing and evaluating the information used to prepare a company’s financial statements

independent audit

an evaluation and unbiased opinion about the accuracy of a company’s financial statements

tax accountant

an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies

government and not-for-profit accounting

accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget