acctg pt2 (intro to sfp)

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Accounting

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127 Terms
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Accounting

system designed to identify, collect, process, measure and communicate economic information about the business entity to those users having interest in the financial affairs of the entity

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Accounting (accounting standards council)

is a service activity

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Accounting (accounting standards council)

Its function is to provide quantitative information, primarily financial in nature, about finances, about economic entities, that is intended to be useful in making economic decision.

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Accounting (committee on accounting terminology of the american institute of certified public accountants)

the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part, at least, of a Financial character and interpreting the results thereof.

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Accounting (american accounting association)

the method of recognizing, appraising and communicating economic details to permit informed judgment and decision by users of the information.

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Statement of financial position

Also known as Balance sheet

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Statement of financial position

It presents the financial position of an entity at a given date

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As at, as of

The date of the statement of financial position is always “” or “” the end of the period

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Assets, liabilities, and equity

SFP shows the company’s _____, _____, and ______

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Debit and credit

SFP is divided into two parts

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Liabilities

claims of creditors

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Equity

claims of owners

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Real accounts

The accounts in the balance sheet is called

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Real accounts

accounts where their balances are carried forward into the next accounting period

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Closing

Real accounts always have a _______ balance

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Assets

What you “own”

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Assets

Control and inflows

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Debit

Normal balance of Assets

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Assets

SFP balances start with ______

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Assets

company resources that are expected to have future economic benefits

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Liabilities

What you “owe”

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Liabilities

No control and outflows

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Liabilities

These are obligations of the company

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Credit

Normal balance of Liabilities

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Equity

What you “own” - What you “owe”

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Equity

Residual Interest

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Equity

the excess of assets over liabilities

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Equity

the net assets of the business

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Current assets

A type of asset wherein items listed on a company’s balance sheet that are expected to be converted into cash within one fiscal year (12 months of the transaction date)

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Current assets

assets that are expected to be converted to cash or consumed within one year.

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Noncurrent assets

A type of asset wherein long-term assets that a company expects to hold over one fiscal year (more than 12 months) that cannot be readily converted to cash within a year

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Noncurrent assets

assets that are expected to be used for more than one year.

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Cash, cash equivalents, account receivables, trading securities, inventories, supplies, and other prepaid assets

Examples of Current Assets (C, CE, AR, TS, I, S, and OPS)

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Cash

Include bills and coins on hand, bank accounts, and operating funds

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Cash

currency readily available to be used for the company's operations

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Cash

It is any medium of exchange that a bank will accept for deposit at face value

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Cash equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value

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Cash equivalents

technically not cash because it is not immediately available for use. It is almost cash in the sense that it will become cash within the next 90 days.

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Cash equivalents

includes investment and treasury bills (t-bills)

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Account receivables

Amounts owed by customers to the entity

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Receivables

a general term that refers to the company's right to collect payment from third parties, such as customers and employees

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Receivables

arise from contractual rights to receive cash or other assets from third parties.

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Trade receivables

claims from suppliers from unpaid sales or services rendered in advance to customers

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Trade receivables

came from the normal operating activities of the company. This is usually the largest receivables of an entity.

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Discount

amount to be deducted in a customer payment

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Discount period

a period where the customer could avail a discount

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Notes receivables

Are evidenced by a promissory note

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Promissory note

a piece of paper signed by the borrower where it promises to pay a certain amount at a certain time

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Interest receivables

Are collectible amounts due to the cost of borrowing money

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Trading securities

Securities that have been purchased by a company for the purposes of realizing a short term profit

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Inventories

This balance sheet account represents cost of unsold merchandise

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Inventories

company’s assets that are sold in the normal course of its business

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Merchandise inventory

goods held for sale by the trading or merchandising company, account use in merchandising business (buy and sell)

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Raw materials inventory

materials held for use in the production of finished foods of a manufacturing company

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Goods in process inventory

materials in process in the production area but not yet finish

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Finished goods inventory

finished product held for sale by the manufacturing company

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Manufacturing business

from raw materials that will undergo the process  into finished products

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Supplies

Those that are to be used in the day-to-day operations of the business such as Office supplies are not Inventories. It is classified as an asset called

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Supplies and other prepaid assets

This include office supplies to be consumed by the business and prepaid assets.

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Prepaid expenses

expenses not yet incurred but paid in advance

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Property, plant, and equipment, intangibles, investment properties, biological assets, accumulated depreciation

Examples of Non-current Assets (PPE, IA, IP, BA)

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Property, plant, and equipment

Include fixed assets used in the normal operating cycle or production of the business.

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Property, plant, and equipment

Long term assets with physical substance

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Fixed assets

old term of Property, plant, and equipment

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Property, plant, and equipment

These assets are long-term assets that are used in the operations of the company

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Land, building, equipment, land and building improvements, leasehold improvements

Examples of PPE are: (L, B, E, LBI, LI)

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Land

real property used in operations or for rent. This is a fixed asset not subject to deprecation.

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Building

real property used in operations such as warehouse and office buildings.

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Equipment

this includes office computers, automobiles, delivery vehicle, and manufacturing equipment.

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Land and building improvements

these are enhancements to land or building. Land improvements includes landscaping, parking lots and driveways. Building improvements includes floor and roof renovation.

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Leasehold improvements

it’s like building improvements, except that the premise is just rented by the company.

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Intangibles

an asset but without physical substance (e.g. trademarks, patent, copyright, goodwill)

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investment properties

are long-lived assets not used in production

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Biological assets

Are living plants or animals held by the business for resale or for breeding

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Accumulated depreciation

Is a valuation account which represents the decrease in value of a fixed asset except for land due to continued use, wear and tear, passage of time and obsolescence

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Current liabilities

Are obligations or debts of the business which will be settled within 12 months of the date on the balance sheet.

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Noncurrent liabilities

Are obligations or debts of the business that will be due and payable beyond one year or 12 months

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Accounts payable, notes payable, interest payable, other accrued expenses, income tax payable, unearned income

Examples of current liabilities

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Accounts payable

Are open accounts relating to purchase of goods and/or raw materials

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Notes payable

Are evidenced by a promissory note.

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Other accrued expenses

These accounts pertain to expenses incurred but not yet paid.

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Income tax payable

Business organization’s tax liability to the government where it operates

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Unearned income

This represents income received in advance but not yet earned. In short, collection are already made but services are not yet rendered.

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Notes payable, mortgage payable, loan payable, bonds payable

Examples of Noncurrent Liabilities

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