Accounting for Business Owners Flashcards
(140 cards)
1
Q
Negatives of Cash
1.
2.
3.
4.
A
- Difficult to keep track of
- Receipts get lost
- Cash misused
- Does not comply with federal and state reporting guidelines
2
Q
Which accounting basis has no accounts receivable?
A
Cash
3
Q
Accrual Basis
A
Revenues are recorded when cash is earned
4
Q
Which basis has no accounts receivable?
A
Cash
5
Q
What do Business Checking Accounts do
1.
2.
A
- Provides a record of all payments
- Provides a record of all deposits
6
Q
which basis is used by medium and large businesses?
A
accrual
7
Q
The purpose of accounting
1.
2.
3.
4.
5.
6.
A
- Increase your business skills
- Reduce overhead
- Reduce areas of non-profitability
- Comply with state and federal laws
- Account for all cash flow
- Provide information for insurance companies
8
Q
What provides the main sources of record keeping?
A
A combination of business credit cards and a business checking account will provide the main sources of record keeping.
9
Q
On a cash basis, expenses are recorded when?
A
When paid
10
Q
Which basis conforms to GAAP
A
accrual
11
Q
What dictates the recording process of cash basis?
A
Cash
12
Q
which basis uses accounts payable
A
accrual
13
Q
On an accrual basis, expenses are recorded when?
A
When incurred
14
Q
Which basis are tax returns prepared on
A
Cash Basis
15
Q
Do not mix X and Y. Doing so will create a possible “flag” for being audited.
A
Personal and business
16
Q
Business Credit Cards
1.
2.
3.
A
- Great way to track purchases
- Easy to return purchases for credit
- Monthly statements provided
17
Q
Which basis is formal accounting basis?
A
accrual
18
Q
There are two basis for accounting 1 2
A
Cash basis Accrual Basis
19
Q
Which basis has no recorded of expenses on credit?
A
Cash
20
Q
Which basis is used by small businesses?
A
Cash
21
Q
which basis is taught in all accounting classes
A
accrual
22
Q
Cash basis
A
Revenues are recorded when cash is received
23
Q
Which basis has user accounts recievable
A
accrual
24
Q
Accounts payable: current X
A
liability
25
Accounts payable: Amounts owed to X
amounts owed to suppliers by business
26
Accounts payable: Equity:
Amount of assets remaining after all liabilities are paid off. The true ownership value
27
Accounts Receivable Current X
asset
28
Are accounts receivable: liquid or not as liquid
not as liquid
29
Are accounts receivable: amounts owed to X
Business by customers for services
30
Cash: current X
asset
31
Cash is it liquid?
Most liquid
32
examples of cash
Currency,
coins,
bank accounts,
money market accounts,
commercial paper,
certificates of deposit (less than 90 days)
33
What are current assets?
Assets that can be turned into cash within 1 year
34
Current assets examples?
cash, accounts receivable, inventory, prepaid insurance, supplies
35
What are current liabilities?
Payments of debt within 1 year
36
What is Depreciation:
Write off to a long term asset or The write off of the fixed assets (except land) during the accounting period (1 year)
37
What type of expense is depreciation?
non cash expense
38
2 methods of depreciation?
Straight line and declining balance
39
Expenses:
Cost of doing business during the current accounting period
40
Expenses: When could the expenses been paid?
During the accounting period
41
Expenses: Where could the expenses have been incurred?
on credit (Example: accounts payable for supplies)
42
Fixed assets:
long term asset
43
examples of fixed assets
Land, building, equipment, computers, fixed of physical assets used by the business to generate profits.
44
Long Term Liabilities:
payment of debt that exceeds 1 year
45
long term liability examples
notes payable, mortgage
46
what kind of liability is Mortgage note Payable
long term liability
47
Mortgage note Payable:
amount owed for land or building
48
Net worth:
Assets minus all liability
49
Revenues:
Amount earned by the business during the current accounting period (1 year)
50
What form can Revenue be earned as
cash revenue or revenue on credit
51
Basic Law of Business:
Always have:
Attorney Accountant
52
Accounting:
The Government requires that X
all records be kept
53
Which government agencies require that records be kept
Internal Revenue Service Michigan Department of Treasury
54
A business owner should keep their records a MINIMUM of X
seven (7) years
55
Personal records should be kept a minimum of X
three (3) years
56
Six types of required records:
1. Sales receipts
2. Check register and Credit Cards
3. Bank statements
4. Payroll Records
5. Out of Pocket Expenses
6. Employee Business Expense
57
Sale Receipts examples:
Invoices
Credit Memos
Contracts
Credit Card Statements
58
All payments should be made by X first and Y second
All payments should be made by credit cards 1st and checks 2nd
59
What are bank statements?
Statements of all accounts
60
Payroll record examples:
W-2 1099 W-4 I-9
61
When is 1099 due?
January 31 1099
62
What are out of pocket expenses?
Cash reciepts
63
How should you record out of pocket expenses?
Information describing Purpose, date, and the job for which it was purchased should be attached
64
Employee Business Expenses: usually applies to X
meals and entertainment
65
Employee Business Expenses: only X% of the total bill is an expense
only 50% of bill is an expense
66
Most business follow what fiscal basis?
Calendar
67
Tax Statement Flow Chart:
1
2
3
4
Source Docs
5 journals with detailed information
General ledger
financial statement
68
Examples of source documents
1 Receipts
2 Invoices
3 Purchase Orders
4 Sales
69
5 Journals with Detailed Information
1 Sales
2 Purchase
3 Cash Receipts
4 Cash Disbursements
5 General
70
What does a general ledger do?
Summary of the journals T-accounts of everything make up the general ledger
71
Financial Statements examples
Income Statement
Balance Sheet
Statement of Cash Flow
Statement of Owner’s Equity
72
Every business financial transaction requires X entries for recording purposes
two
73
X recorded on left side of T account Y recorded on right
Debit on left, credit on right
74
Journals are called X
Books of original entry
75
1. SALES JOURNAL:
Recording of sales on credit
76
2. PURCHASES JOURNAL:
Recording of purchases on credit
77
3. CASH RECEIPT JOURNAL:
Recording of all Incoming CASH business transactions
78
4. CASH DISBURSEMENTS JOURNAL
Recording of all outgoing cash business transactions (payments made)
79
What is a cash receipt journal used to prepare?
Sales Tax Requirements
80
5. GENERAL JOURNAL
Recording of adjusting and closing entries Non cash expenses
81
In which journal is depreciation shown in
General Journal
82
In which journal is equipment lost or damaged, inventory of no value, stolen equipment and bad debts shown in
General Journal
83
All transactions from the journals are recorded where?
general ledger
84
THE GENERAL LEDGER BALANCES MUST X IN ORDER FOR THE ACCOUNTING EQUATION TO BE IN X
Balance
85
What provides information for preparing the financial statements
journals and general ledger
86
Once the recording process is complete, accountants prepare X
Financial Statements
87
There are four formal X
Financial Statements
88
What are the four formal Financial statements?
1.
2.
3.
4.
1. INCOME STATEMENT
2. STATEMENT OF OWNERS’EQUITY
3. BALANCE SHEET
4. STATEMENT OF CASH FLOW
89
1. INCOME STATEMENT:
Shows net profit or loss Shows revenues and expenses for the business for the current accounting period
90
2. STATEMENT OF OWNERS’ EQUITY
Shows value as of statement date
Capital paid in, draws, and investments
91
3. BALANCE SHEET
Shows assets, liabilities, and equity The financial condition of the company and the financial strength of the operation
92
4. STATEMENT OF CASH FLOW
Shows where the cash went-basically for bank statements
93
How often are income statements prepared?
Monthly
94
What do financial statements indicate?
problem areas
95
income statements show how well you control
How well you control costs and expenses
96
What does a balance sheet indicate and when?
Indicates the financial condition of the company on the LAST DAY of the accounting period (year)
97
Financial Ratios are calculated for
comparison purposes and are used to make business decisions
98
Working Capital Ratio: and how to calculate it
A measure of liquidity to pay current bills Current Assets - Current Liabilities = working capital
99
Current Ratio: and how to calculate it
Current Assets (From Balance Sheet) / Current Liabilities (From Balance Sheet)
100
What is a good current ratio
2 to 1
101
Quick Assets Ratio:
A Quick Ratio indicates the ability to pay current debts
102
Whats a good quick ratio
1.0 to 1 (or better) usually indicates a Good Short-Term Paying ability
103
Quick asset ratios do not X
include inventory. Any time it says not including inventory, it means quick asset ratio.
104
How do you calculate a quick asset ratio:
Cash + Acct. Rec. + Short Term Invest / Current Liabilities
105
Fixed Assets -Net Worth Ratio:
A formula showing the relationship between a company’s fixed (tied up) assets and the company’s total assets after liabilities
106
Fixed Assets -Net Worth Ratio reflects the companies level of X
solvency, as fixed assets are not easily exchangeable for cash
107
Fixed Assets -Net Worth Ratio formula:
Fixed assets / net worth (total assets - liabilities)
108
In a fixed assets to net worth ratio anything over X puts the company in a vulnerable position
0.75
109
Gross Profit - Sales Ratio:
A formula showing the relationship between profits after direct sales expenses and total sales.
110
Fixed Assets -Net Worth Ratio reflects the companies X
This ratio reflects the company’s money available to pay operating expenses and profit.
111
Gross Profit - Sales Ratio formula
Net Sales (Sales - Direct Sales Expenses) / sales
112
Gross Margin Ratio (Profit Margin) formula
gross profit (net sales - cost of goods sold) / net sales
113
Why should a company monitor its gross margin ratio:
A company should be continuously monitoring its gross margin ratio to be certain it will result in a gross profit that will be sufficient to cover it selling and administrative expense
114
True Investment Yield (Real Rate of Return):
A formula calculating the true value of an investment after inflation.
115
True Investment Yield (Real Rate of Return) formula:
rate of return - inflation
116
1. A _____________ provides a good, detailed, overview of how current
income compares with income received last week?
Sales Journal
117
2. Sales Records are needed...
For some insurance reports
118
3. Check Registers...
Balance the bank accounts
119
4. Builders need ______ to pay small expenses that arise day to day.
Petty Cash
120
5. Rent, phone, utilities, and office supplies are considered\_\_\_\_\_\_\_ expenses.
Overhead
121
6. \_\_\_\_\_\_must be presented when apply for performance bonds and for loan applications.
Financial Statements
122
\_\_\_\_\_\_ is the simplest bookkeeping method used
Double entry
123
A ______ is entered on the left side of a T-Account.
Debit
124
A\_\_\_\_ is entered on the right side of a T-Account
Credit
125
A General Ledger
a. Summarizes all business operations
b. Is separate form subsidiary ledgers
c. IS out of balance if there is a posting error
126
11. A Financial Statement\_\_\_\_\_\_\_\_\_\_\_\_\_.
Summarizes the General Ledger
127
Comparisons of net worth to liabilities used by bankers considering load applications are called\_\_\_\_\_\_\_\_.
Ratios
128
13. \_\_\_\_\_are funds withheld form payments as an incentive for timely job completion.
Retainage
129
It is important to watch\_\_\_\_, since it can alert the business to the acumulation of hard to collect accounts
Trends
130
The most popular and widely used test for cash position is the
Current ratio
131
\_\_\_\_\_\_summarizes the existing condition of a business
Balance Sheet
132
The satisfactory minimum current ratio which compares current assets to current liabilities is
2:1
133
A ratio used to determine the ability to pay current debts without including inventory.
Quick Assets
134
Working capital is
Available Current Assets
135
Net Income to Net Ratio gives the contractor a good idea of
Operation efficiency
136
Current Assets minus current liabilities=
Working capital
137
Current assets divided by current liabilities
Current ratio
138
Assets minus Inventory divided by current liabilities
Quick Assets Ratio
139
Net Income divided by net sales
Profit Margin
140
Loan officers consider X a good indicator
to approve a loan request
Quick Ratios
