Principles of accounting exam 1

internal user of financial statement

internal user of financial statement

from inside the company

internal user of financial statement example

HR, Management, marketing

external users of financial statement

from outside the company

external users of financial statement example

IRS, SEC, creditors

accounting equation

A= L+SHE(CS+RE(R-E-D))

sole propietorshiop

only one owner, simple to establish, tax advantages, owner controlled

partnership

2+ owners, shared control, tax advantages

Corporation

Easier to transfer ownership, easier to raise funds, no personal liability

assets

items of value owned and used by a business

liabilities

amounts company owes to creditors

common stock

equity paid in by stockholders(owners)

Retained earnings

profits(equity) earned by company

revenues

sales of goods or services to customers

expenses

costs of doing business necessary to earn revenues

GAAP

generally accepted accounting principles, rules for financial statements

financail statements order

income statment, statement of retained earnings, balance sheet, statement of cash flow

are dividends on balance sheet

no dividends are not on balance sheet

what order is balance sheet prepared

balance sheet is prepared in order of liquidity

balance sheet

for a point in time

income sheet

reports a period of time

current assets

Supplies, Accounts receivable, cash

Current libalities

Accounts payable, Deferred revenue

Five steps of acccounting cycle

analyze, record, summarize, prepare trial balance, report financial statements

Trial balance

it is in the order of the financial equation, makes sure debits and credits equal

current ratio

Current assets/current liabilities

cost principle

assets and liabilities are recorded at COST(cash equivalency at date of transaction), you cannot write up a cost but not down

time period asspumption

divide companies long life into shorter shucks of time

cash basis of accounting

records revenues when cash is paid and expenses when cash is paid

accrual basis accounitng

required by GAAP

Revenue recognition principles

revenues are recognized when earned

Expense recognition principle

matching, expenses are recorded in same period as revenues to which they relate. recorded when the expense happens, does not matter when the cash comes.

Net profit Margin

net income/Revenues

Net profit margin meaning

the percentage of dollar earned in revenue that goes into net income

why adjust entries

ensure everything is properly stated

when do we post adjustments

anytime financial statements are prepared

deferred

after cash

accrual

before cash

temp accounts

revenue, expense, dividends

permanent accounts

assets, liabilites, SHE

what is closing entries

transferring temp accounts into permanent accounts

book/carrying value

asset cost-accum dep

accum dep account type

perm account, running total of dep ever taken