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Exam 1 (Chapters 1-4)

Terms in this set (53)

3 parts of accounting
Identification
Recording
Classification
Internal Users
bank managers, analysts, etc
External Users
customers, investors, govt, etc.
2 main things involving ethics in accounting
transparency and accountability
GAAP (Generally Accepted Accounting Principles)
standard that accounting practices use... allows to compare apples to apples
SEC (Securities and Exchange Commission)
a govt agency that oversees markets and accounting standards
--> born out of market crash
--> brought ethics to market to ensure correct decisions
FASB (Financial Accounting Standards Board)
kicking out/refreshing the accounting standards
IFRS (International Financial Reporting Standards)
in the USA, the standard is the GAAP, but there is an international push to go to IFRS for convergence
Cost Principle
record things for the price we pay at the time we pay for them
Fair value principle
even if you think it is worth more, record it at its current price
Monetary Assumption
only record when money is being exchanged
Economic Entity Assumption
keep personal activities separate from business (economic) entities
Basic Accounting Equation
Assets = Liabilities + Stockholders' Equity
4 types of accounting statements
-Income Statement
-Statement of Retained Earnings
-Balance Sheet
-Statement of Cashflows
Put "for the month ending 8/31" on the following 3 statements
Income Statement
R/E statement
CF
Put the current date on this type of statement
Balance Sheet
it is a snapshot in time
Income Statement
Revenues - Expenses = Net Income

Profit or Loss
Statement of Retained Earnings
Beginning R/E + Net Income - Dividends = New R/E
Balance Sheet
assets, liabilities, stockholders equity (common stock and new R/E) listed out

laundry list of everything
What is an account?
something we want to know more info about (asset, liability, etc.)
What is a normal balance?
how we show an increase in an account
T account
account with a debit on the left and a credit on the right
3 accounts with a normal debit balance
Assets, Expenses, Dividends
4 accounts with a normal credit balance
Liability, C/S, R/E, Revenue
Recording Process
analyze transaction --> record to journal --> post to ledger
Simple Journal Entry
journal entry involving one debit and one credit
Compound Journal Entry
journal entry that involves more than two accounts
Chart of Accounts
Table of contents for the general ledger
Trial Balance
List of every account you have with a balance in it
Time Period Assumption
there are artificial time periods (that are important/mean something)
Calendar
January through December
Fiscal
accounting year - tied to an operation
Revenue Recognition Principle
Record revenue in the period in which it is earned
Expense Recognition Principle
Record expenses in the period in which they are incurred
Matching Principle
match the expenses we incur with the revenue we earn
Accrual Based Accounting
making adjusting entries to give ourselves credit for revenue and expenses when we incur them (don't wait until we pay or get paid)
Cash Based Accounting
Recording our revenue and expenses when cash is either paid or received (small stores can do this)
Types of Adjusting Entries
deferrals and accruals
2 types of deferrals
prepaid expenses and unearned revenues
2 types of accruals
accrued revenues and accrued expenses
2 types of accounts
permanent and temporary
Types of permanent accounts
cash, A/R, A/P, Equipment, R/E, supplies, C/S, unearned service revenue
Types of Temporary accounts
Revenue
Expense
Dividend
Income Summary "closing process"
Steps in closing temporary accounts
1. Close all revenue accounts to income summary
2. Close all expense accounts to Income summary
3. Close income summary to retained earnings
4. Close dividends directly to retained earnings
What is the point of a Classified Balance Sheet
provides additional detail for the balance sheet
What is on a classified balance sheet?
ASSETS
1. Current Assets
2. Long Term Investments
3. P/P/E (Property/Plant/Equipment)
4. Intangible Assets

LIABILITIES AND STOCKHOLDERS EQUITY
1. Current Liabilities
2. Long Term Liabilities
3. Stockholder Equity (Common Stock and R/E)
What is a current asset
cash or anything we convert to cash within 1 year or an operating cycle (whichever is longer)

ex. Cash or A/R
What is a long term investment
something we are going to hold onto and use at a later point
What is P/P/E
Property Plant Equipment
-currently using as part of our operation
LESS accumulated depreciation
What is an intangible asset
things like trademarks, copyrights, etc.
What is a current liability
obligations that we will pay within a year or an operating cycle (notes payable, A/P, etc.)
What is a longterm liability
obligations you pay over time

ex. mortgage (however, some is a CL and the rest is a LTL)
What is Stockholders Equity
common stock and retained earnings
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