acc chap 1-3 Flashcards
(52 cards)
How do you record prepaid expenses?
Dr expense
Cr asset
How do you record depreciation
Dr expense
Cr contra asset
How do you record accrued expense
Dr expense
Cr liability
How do you record accrued revenue
Dr asset
Cr revenue
How do you record unearned revenue
Dr liability
Cr revenue
Types of Deferrals
Prepaid expenses – recorded as an asset when purchased
- Expensed when used or expired
Unearned revenue - recorded as a liability when payment is received
- Recorded as revenue when earned
Types of Depreciation (a type of deferral)
The allocation of the cost of a property, plant & equipment to expense over the asset’s useful life. - – Represents wear and tear and obsolescence.
- The cost spread over the amount of time you use it
Accumulated depreciation = contra asset account, has a credit balance
Carrying amount = cost - accumulated depreciation
Types of Accruals
Accrued expense - record expense before paying cash ex. Salaries, interest taxes
- The term accrued expense refers to a liability that arises from an expense that has not yet been paid
Accrued revenue
- Revenue that is recognized but not yet realized
Interest
*INTEREST IS ALWAYS A YEARLY RATE
Principal x interest x time
Ex. 10 200 x 10 % x 4/12 = 725
Supplies before and after it gets used up and where its recorded
Supplies is an asset on the balance sheet, when its used up it becomes an expense on the income statement
expense recognition principle
- identify expense when incurred
- measure the expense
- recognize along with related revenue
revenue recognition principle
- record after revenue is earned (percentage of completion)
- when goods/services have been delivered
What accounts get closed at year end and where do they go?
- Revenue, expenses and dividends go into retained earnings
How do you close accounts like revenue, expenses and dividends?
If it has a normal credit balance like revenue, debit it and credit retained earnings. If it has a normal debit balance, credit it and debit retained earnings.
How Transactions Affect Ratios
- Increase sales to enhance both net income and current assets
- Decrease expenses to improve net income and reduce liabilities
- Sell additional shares to increase cash and shareholders’ equity
What is accounting?
the information system that measures business activities, processes data into reports, and communicates results to decision makers
What are financial statements?
Business documents that companies use to report their activities to stakeholders. This may include: Income statements, statements of changes in equity, balance sheets (a financial statement that reports a company’s assets, liabilities, and shareholder equity at a specific point in time), statement of cash flow.
Those who use accounting information include:
Individuals, managers, investors and creditors (primary users of accounting information), government regulatory agencies, taxing authorities, non-profit organizations (their profit must cover their costs to keep the non-profit running)
What are assets?
Products or services that aid in the profit of an organization now or in the future, ex. Company cars
What are liabilities?
Debts and loans payable to creditors (Examples include accounts payable, notes payable, salary payable, interest payable, etc)
Three ways to organize a business
Proprietorship (sole), partnership, corporation
Private vs public companies:
Private companies financial information can’t be accessed by the public so shares are privately held, public companies financial information is available for everyone to see so shares are sold on stock exchange
Anatomy of a corporation
Shareholders (owners), board of directors (hire people to run the corporation, supervises activities of the business), chief executive officer (CEO), and vice presidents
