Bookkeeping Flashcards
(44 cards)
Assets
Things you own (Probable economic benefits obtained or controlled by a particular entity as a result of past transactions or events).
Liabilities
Things you owe (Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events).
Equity
What’s left over after subtracting liabilities from assets (The residual interest in the assets of an entity that remains after deducting its liabilities).
Accounting Equation
Assets = Liabilities + Equity
T-Account
A visual representation of an account. A T-table listing the debits on the left and the credits on the right of a specific account and the sum total of these at the bottom
Debits are increases to which types of accounts?
Assets and expenses
Credits are increases to which types of accounts?
Liabilities, Equity, and Revenue/income
Double-entry accounting
Accounting in which every transaction is recorded twice: as a debit in one account and as a credit in another account
The General Ledger
A list of the transactions in each account. Visually represented by T-account
Chart of Accounts
A list of all the accounts used by the business to record and classify financial transactions. The accounts are broken into 5 categories and are listed in this order: Assets, Liabilities, Equity, Revenue/Income, and Costs/Expenses
The Trial Balance
A two-column summary of all the debits and credits in each account in the chart of accounts. The sum of the debits should equal the sum of the credits. This is not a financial statement, but an internal report.
Economic Entity Assumption
A generally accepted accounting principle (GAAP). The business and its financial transactions are separate and distinct from the owner’s personal financial transactions.
Monetary Unit Assumption
A generally accepted accounting principle (GAAP). Financial transactions are measured in US dollars.
Time Period Assumption
A generally accepted accounting principle (GAAP). The financial reports and statements cover a specific span of time and that is clearly shown on all financial reports and statements.
Cost Principle
A generally accepted accounting principle (GAAP). Financial transactions are shown, forever, as the original and historical cost.
Full Disclosure Principle
A generally accepted accounting principle (GAAP). All pertinent information must be disclosed on the financial statements.
Going Concern Principle
A generally accepted accounting principle (GAAP). We assume the business is going to continue to exist into the foreseeable future.
Matching Principle
A generally accepted accounting principle (GAAP). Expenses are matched with revenue. For example, sales commission is recorded when the sales are made, not when the commission is actually paid. (i.e. use the accrual basis of accounting)
Revenue Recognition Principle
A generally accepted accounting principle (GAAP). Revenue is shown in the financial statements when a service is performed or a good is sold, even if payment for that good/service isn’t received until later.
Materiality Principle
A generally accepted accounting principle (GAAP). Use your judgement to record what is significant (material) and don’t worry about what isn’t. For example, if you don’t record a 50 cent transaction, it’s okay.
Conservatism Principle
A generally accepted accounting principle (GAAP). When faced with a choice on financial statements, choose the option that reflects a more conservative view of the business, i.e., a decrease in net income or assets or an increase in liabilities.
Who governs the generally accepted accounting principles?
The Financial Accounting Standards Board (FASB)
Balance Sheet
One of the “Big 3” financial statements. The accounting equation in financial statement form. Shows a list of assets and their total, then lists liabilities, and then equity, and then totals liabilities and equity. It’s a snapshot as of a specific date.
Current assets
Assets that are expected to become cash within a year (e.g. checking/savings accounts, accounts receivable, inventory)
