DECA Accounting Applications

Accounting

Language of business. Record, classify, summarize, analyze and communicate a business's financial information and transactions for use in management decision-making.

Sarbanes-Oxley Act 2002

Act passed by U.S congress to protect investors from the possibility of fraudulent accounting activities by corporations.

Securities and Exchange Commission

Protects investors, maintain fair, orderly, efficient markets, and facilitate capital information.

Accounting Cycle

The collective process of recording and processing the accounting events of a company. The series of steps begins with a single transaction and ends with its conclusion of the financial statements.

T Accounts

Simplest account structure. The account title and account number appear above the account. Debits always go on the LEFT side and Credits always go on the RIGHT.

Normal Balance

Goes on the side where increases go because the increases in any account are usually greater than the decreases

Trial Balance

List of all general ledger accounts (both revenue and capital) contained in the ledger of a business.

Annual Report

Comprehensive report on a company's activities throughout the preceding year. Intend to give shareholders information about the company"s activities.

Financial Ratios

Useful indicators of a firms performance and financial situation. Most can be calculated from information provided by the financial statements. Can be used to analyze trends and to compare the firm's financials to other firms.

Asset

Balance sheet item representing what a firm owns, tangible or intangible. Cash, Computer Systems, Patents

Liability

Money that the company owes to others. Mortgages, Vehicle Loans.

Equity

The owners value in an asset or group of assets, also called net worth.

Balance Sheet

Financial statement that summarizes a company's assets, liabilities, and owner's equity at a specific point in time. The three segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Working Capital

Total Current Assets - Total Current Liabilities

(Total Current aka Current)

Tells the business exactly what their net value is in the short run

Current Ratio

Total Current Assets/ Total Current Liabilities

Measures whether or not a firm has enough resources to pay its debt over the next twelve months.

Debt Ratio

Total Liabilities / Total Assets

(Total aka Prior)

Equity Ratio

Total Owners Equity / Total Assets

Financial Statements

Objective is to provide information about the financial position, performance and changes in financial position that are useful in making economic positions

Financial Institutions

Establishment that conducts financial transactions such as loans, investments, and deposits. (Commercial banks, Investment Banks, and Insurance Companies)

Financial Records

Monitor the progress of business and identify source of receipts

Bank Reconcilliation

Process performed by a company to ensure that the company's records (Check Register, General Ledger Account, Balance Sheet, etc.) are correct and the bank's record are also correct

Accounts Receivable

The amount of money owed by your customers after goods or services have been delivered and/or used. An asset to a creditor.

Accounts Payable

The amount of money you owe creditors (suppliers) in return for good and/or services they have delivered. A liability resulting from the sale of goods/services on credit or "on account".

Capital

A financial asset and its value, such as cash or goods. Working Capital is calculated by taking your Current Assets subtracted by Current Liabilities

Cash Flow

The revenue or expense expected to be generated through business activities over a period of time. Its essential to stay positive in order for a business to survive in the long run.

Costs of Goods Sold (COGS)

The direct expense related to producing the goods or services sold by a company. This can include the cost of the raw materials (Parts)

Credit

An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction

Debit

An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet

General Ledger

Complete record of financial transactions over the life of a company

Generally Accepted Accounting Principles (GAAP)

Standard framework of guidelines for financial accounting used in any given jurisdiction; aka Accounting Standards

Net Income

A company's total earnings, also called net profit or the "Bottom Line". Equation: Total Expenses - Total Revenues

Present Value

The value of how much a future sum is worth today. Helps understand how receiving $100 now is worth more than receiving $100 a year from now.

Profit and Loss Statement

Financial Statement that is used to summarize a company's performance and financial position by reviewing revenues, costs, and expenses during a specific period of time

Return on Investment

Measure used to evaluate the financial performance relative to the amount of money that was invested.

Signature Cards

A document that a bank keeps on file with the signatures of "authorized" people on the account

Electronic Funds Transfer (EFT)

The electronic exchange, transfer of money from one account to another, either with a single financial institution or across multiple institutions, through computer based systems. Typically safe and secure and is a cost saving tool, also typically "green" no mailing and or processing thousands of checks.

Voucher System

Set of procedures for controlling cash payments by preparing/approving "vouchers" before payments are made. NO check can be issued without an authorized voucher.

Gross Profit

Difference between revenue and the cost of making a product or providing a service.

Certified Public Accountant

The only "Licensed" qualification in this possession by a state board of accountancy

Certified Management Accountant

An accounting specialist who works for businesses to uniform their financial procedures/decisions and management skills

Special Journals

Designed to facilitate the process of journalizing and posting transactions. Used for most frequent transactions in a business. Three Types:
1. Sales Journal
2. Cash Receipts
3. Purchases

MACRS

Modified Accelerated Cost Recover System. Deals with tax depreciation

Depreciation

Method of allocating the cost of a tangible asset over its useful life. Other methods include MACRS, Units of Production, and Declining Balance.

Straight Line Method

Most common type of determining depreciation. Used to gradually reduce the carrying amount of a fixed asset over its useful life.

Equation: Cost-Salvage Value/ Useful Life

Book Value

Equals Salvage Value(Residual Value) at the end of the Useful Life ( Deals with Depreciation)

Units of Production

A separate small group of employees producing a product.

501(c)(3)

Tax Exempt Non Profit Organization

Declining Balance

Amount remaining unpaid on a loan, and which decreases with every payment of the loan installment.

Bilateral Contract

Contract in which both parties promise to do something

Unlateral Contract

Contract that contains a promise by only one party to do something.

Verbal Contract

Any contract expressed in words, oral or written

Non-Verbal Contract

Any contract that is expressed in words.

Six Sigma

High Performance System to execute business strategy that is customer driven.

First In First Out (FIFO)

Inventory accounting in which the oldest items (which those first acquired) are assumed to be first sold.

Last In First Out (LIFO)

Method that operates under the assumption that the last item of inventory purchased is the first one sold.

Trade Defecit

When a country loses money because it is importing more than its exporting

Trade Surplus

Favorable balance of trade; Occurs when a country's exports exceeds that of its imports.

Petty Cash

Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. Usually kept in a cash box. Cashier must be responsible to keep supporting invoices in respect of payments made through.
Surprise cash counts must be conducted time to time to ensure the accuracy of the cash balance.