Foundations Vocabulary Flashcards
(113 cards)
1
Q
Assets (def.)
A
Summary: things you own
Actual Def: probable economic benefit obtained or controlled by a particular entity as a result of past transactions or events
2
Q
Liabilities
A
Summary: debts that you OWE
Actual Def: 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
3
Q
Equity
A
Summary: what’s left over
Actual Def: the residual interest in the assets of an entity that remains after deducting it’s liabilities
4
Q
What is the accounting equation?
A
Assets = Liabilities + Equity
5
Q
Does the accounting equation always have to be in balance?
A
Yes
6
Q
True or false: sometimes only one side of the accounting equation is affected
A
True
7
Q
True or false: Both sides of the accounting equation are always affected
A
False
8
Q
Which component of the accounting equation has two components?
A
Equity
9
Q
What are the components of equity?
A
- ) income
2. ) expenses
10
Q
How do the two components of equity balance to create equity?
A
Income - Expenses = Equity
11
Q
What is the equation for equity using its 2 components?
A
Income - expenses = equity
12
Q
What is an accounts payable?
A
A bill or liability that is payed at a later date, generating an invoice
13
Q
Into which category of the accounting equation does cash fall?
A
ASSET
14
Q
Where are debits and credits displayed on T charts?
A
Debit on the left
Credit on the right
15
Q
Debited or to debit (Def)
A
The act of putting a debit into an account
debit denotes incoming
16
Q
Is debit incoming or outgoing?
A
Incoming
17
Q
Credited or to credit (Def)
A
The act of putting credits into an account
Credit denotes outgoing
18
Q
What do you do to an asset if you want it to ~increase~?
A
DEBIT IT
see chart
19
Q
what do you do if you want to ~decrease~ an asset?
A
CREDIT IT
see chart
20
Q
what do you do it you want to ~increase~ an expense?
A
DEBIT IT
see chart
21
Q
what do you do if you want to ~decrease~ an expense
A
CREDIT IT
see chart
22
Q
what do you do if you want to ~decrease~ a liability?
A
DEBIT IT
see chart
23
Q
what do you do if you want to ~decrease~ Equity
A
DEBIT IT
see chart
24
Q
what do you do if you want to ~decrease~ Revenue
A
DEBIT TI
see chart
25
what do you do it you want to ~increase~ a liability?
CREDIT IT
| see chart
26
what do you do it you want to ~increase~ equity
CREDIT IT
| see chart
27
what do you do it you want to ~increase~ a revenue
CREDIT IT
| see Chart
28
The General Ledger (Def)
summary: all transactions, set of accounts
Actual Def: a compilation of all financial transactions classifying and summarizing them.
*the most detailed section of bookkeeping records
29
which document/ location shows all transactions in the most detail?
the general ledger
30
How is the chart of accounts abbreviated?
COA
31
what is the COA?
chart of accounts
32
Chart of accounts (Def)
summary: essentially a roster or table of contents
Actual Def: a listing of all accounts used by the business to record and classify financial transactions. A listing of accounts shown in the ledger
* every account must be one of the 3 categories in the accounting equation: Asset, liability, equity, income or expense ALWAYS IN THAT ORDER
33
what categories must the accounts in the COA fit into?
asset, liability, equity, income, expense IN THAT ORDER
34
what order much the COA be in?
Asset, Liability , Equity, Income, Expense
35
what is the trial balance?
two column summary of all the debits and credits in the chart of accounts
* similar to a book summary
* lists all accounts in numerical order w/assets 1st and expenses last (asset,liability,equity,income,expense)
36
when is the trial balance shown?
at the end of an accounting period e.g. Dec. 31 or Jun. 30
37
What is GAAP?
Generally Accepted Accounting Principles
Def: the bookkeeping and accounting rulebook
38
Who governs GAAP?
FASB - the Financial Accounting Standards Board
39
Accounting Principle #1
| Economic Entity Assumption
the business and it's financial transactions are separate and distinct from the owner's personal finances
40
what is the 1st accounting principle?
the Economic Entity Assumption
41
Accounting Principle #2
| Monetary Unit Assumption
Financial transactions are measured in U.U. Dollars
42
what is the 2nd accounting principle?
The Monetary Unit Assumption
43
Accounting Principle #3
| Time Period Assumption
the financial transactions and statements cover a specific span of time (weeks, months, years) the specific span of time is clearly shown on all financial reports + statements
44
what is the 3rd accounting principle?
the Time Period Assumption
45
Accounting Principle #4
| Cost Principle
financial transactions are shown, forever, as the original and historical cost - we do NOT adjust for inflation or decrease in the value of an item.
46
what is the 4th accounting principle?
the Cost Principle
47
Accounting Principle #5
| Full Disclosure Principle
all pertinent information must be disclosed on the financial statements - NO HIDING THINGS
48
what is the 5th accounting principle?
the Full Disclosure Principle
49
Accounting Principle #6
| Going Concern Principle
the business is going to last into the foreseeable future - if a business is going under we typically stop reporting
50
what is the 6th accounting principle
the Going Concern Principle
51
Accounting Principle #7
| Matching Principle
forces us to use what is called the accrual basis of accounting - expenses are matched with revenue (ex. cost of a product is shown when sold - sales commission is reflected in the period the sale is recorded) putting things in the proper time period
* if you incur a debt this month but don't pay until next, it needs to be recorded this month, when the debt was accrued
52
what is the 7th accounting principle?
the Matching Principle
53
Accounting Principle #8
| Revenue Recognition Principle
Revenue/sales/income is shown on the financial statements at the time when a service is performed or a good is sold. - same as the the matching principle for expenses except for revenue/income.
54
what is the 8th accounting principle?
the Revenue Recognition Principle
55
Accounting Principle #9
| Materiality Principle
is it "insignificant"? if yes don't sweat it e.g. a $0.50 sale that wasn't recorded per the revenue recognition principle - USE THE MATERIALITY PRINCIPLE SPARINGLY
56
what is the 9th accounting principle?
the Materiality Principle
57
Accounting Principle #10
| Conservatism Principle
when faced with a choice on financial statements, choose the option that reflects...
* a decrease in net income
* a decrease in assets/equity
* an increase in liabilities
58
what is the 10th accounting principle
the Conservatism Principle
59
what is the purpose of a financial statement?
to help business owners keep score
60
list the financial statements
the balance sheet
the income statement
the statement of cash flows
61
what questions do financial statements answer
1. ) what is the equity (capital) in the business
2. ) what is my profit (net)
3. ) where did cash come from and where did it go?
62
which financial statement answers the Q "what is the equity (capital) in the business?"
the balance sheet
aka "the statement of financial position" or "the statement of financial condition" (usu. in Non-Profits)
63
which financial statement answers the Q "what is my profit (net)?"
the income statement
64
which financial statement answers the Q " where did it come from where did it go where did it come from cotton eyed joe (cash)?"
the statement of cash flows
65
what is the balance sheet and what question does it answer?
shows equity (capital) in the business
- represents the accounting equation in statement form
- answers the Q "what the equity (capital in my business)
* the income statement feeds into the balance sheet so things.....balance lol
* balances are as of a specific date and are in order assets-liabilities-equity (all totaled)
66
what is the income statement and what question does it answer?
- a summary of the revenue, costs, expenses and net income (loss) of a business over a specific time period
- answer the question "what is my income/profit/net"
* income is about intervals of time (I&I)
* Revenue - Costs - Expense = net income/net loss
* it is a temporary statement and it gets closed out at the end of certain periods
* feeds into the balance sheet
*in QB its called the P&L
67
what is the statement of cash flow and what question does it answer?
divides cash flow into 3 main categories
* operating activities e.g. sales, purchases, bills (most cash movement)
* Investing activities e.g. buying equipment
* Financing activities e.g. taking out a loan or adding equity
- answers the Q "cotton eyed joe?"
most bookkeepers don't show this to their clients, but it's a disservice not to.
68
what are the steps in the bookkeeping cycle?
Financial Transactions --> Journal (special) --> Ledger (special) --> Trial Balance --> Financial Statements --> Closing Entries --> Financial Transactions
69
where are journals in the bookkeeping cycle?
after financial statements and before ledgers
70
where are ledgers in the bookkeeping cycle?
after journals and before the trial balance
71
where is the trial balance in the bookkeeping cycle?
after ledgers and before financial statements
72
where are financial statements in the bookkeeping cycle?
after the trial balance and before closing entries
73
where are the closing entries in the bookkeeping cycle?
after financial statements and before the newest round of financial transactions
74
what is the first step in the bookkeeping cycle?
Financial Transactions
75
what is the last step in the bookkeeping cycle?
closing entries
76
what is the Journal
the place where the financial transactions are first recorded
also called the book of original entry
* runs in chronological order
* 2 types of Journal
- general journal
- special journals (lots of repetitive entries)
* the journal is more detailed than the ledger
77
what is journalizing
the process of recording transactions in chronological order
78
what is the process of recording transactions in chronological order called
Journalizing
79
what happens after transactions are journalized?
the info is posted to the ledger
80
what is "posting"
the process of transferring information from the journal to the ledger
81
what is the purpose of special journals
they make it easier to monitor repetitive transactions by grouping them
82
examples of special journals
* Cash Receipts Journal (CRJ) : incoming
* Cash Disbursements Journal (CDJ) : outgoing
* Purchases Journal: differs from CDJ bc you can make a purchase w/o paying
* Sales Journal: differs from CRJ bc you can make a sale w/o being paid
- if a transaction does not fall into one of these special journals it is posted to the general ledger
83
what happens to transactions that do not fall into a special journal?
they are posted to the general ledger
84
when sales are made "on account" (no cash received) they are recorded where?
the sales journal
85
what is the Sales Journal
the special journal where sales where no cash was received are recorded
86
what is the CRJ?
the Cash Receipts Journal, a special journal for incoming cash that was received upon performing a service or selling a good.
* recorded daily
* when cash is received form sales on accounts (in the sales journal) it is posted in the CRJ
87
what is the CDJ?
the Cash Disbursements Journal, a special journal for purchases made with cash
or for purchases made on account that have been paid
88
what is the Purchases journal?
the special journal for expenses and purchases made "on account" (no immediate payment)
89
Name the methods of payment
* cash
* checks
* draft (automatic bank payment)
* Banker's Acceptances
* Direct Deposit/ Debit (ACH: Automatic Clearing House)
* wire transfer
* NACHA
* credit/debit card
* paypal
90
when it comes to bank security, always assume this...
that business owners are being secure. there are always updates that can be made to enhance security, take every precaution
91
list the ways to ensure security
* PIN's
* Passwords - change frequently
* 2-factor authentication
* dual signatures on physical checks
* only allowing business owners to approve money going out
* internal controls
* payment/spending limits
92
list types of accounting bases
* the accrual basis (what we do)
* the cash basis (what most accountants and bookkeepers do
* the income tax basis
93
what are the differences between accrual and cash based accounting?
```
accrual = record when earned
cash = record when paid
```
* it all boils down to ~when~ revenue and expenses are recorded
* its all about matching your expenses w/your income from the same period
ex. w/cash method, if rosemary charged a patients insurance sh would record $0 on the day of the transaction, this makes it impossible to see how the business is doing in any given period
94
The listing of all accounts used by a business to record and classify financial transactions is the
chart of accounts
95
what is the two-column summary of all the debits and credits in the Chart of Accounts?
the Trial Balance
96
What is used to classify and summarize financial transactions?
ledger
97
what is the ledger
used to classify and summarize financial transactions?
98
If a business owner wanted to know the financial health of his company, which of the 3 financial statement would he need to see?
all three
99
which financial statement is also referred to as "the statement of financial position"?
the Balance Sheet
100
Which financial statement would show a company’s profit for January of the current year?
Income Statement
101
Which financial statement shows the balances in the accounts as of a specific date?
the Balance Sheet
102
Operating, investing, and financing activities are shown on which financial statement?
the statement of cash flows
103
If a business owner wanted to know where her cash came from and where it went, she would need which financial statement?
the Statement of cash flows
104
Which financial statement is like the accounting equation in financial statement form?
the Balance Sheet
105
If a business owner asked you for their Profit & Loss (P&L) report, which financial statement would you provide?
the Income Statement
106
Which financial statement is a temporary statement that gets closed out?
the income statement
107
If a business owner wanted to know how much equity was in their business, which financial statement would you provide?
the Balance sheet
108
What are the most common types of Cash Journals?
1. ) Cash Receipts Journal (CRJ)
| 2. ) Cash Disbursements Journal (CDJ)
109
Where are Accounts Receivable transactions recorded?
the sales journal
110
What are the most common Subsidiary Ledgers?
1. ) the accounts payable ledger
| 2. ) the accounts receivable ledger
111
What does it mean when sales are made “on account”?
No cash was received, and an Accounts Receivable was created.
112
If a transaction does not fall into a Special Journal, then it is posted to the Trial Balance. T or F
False - it is recorded to the general ledger
113
what is the purpose of a subsidiary ledger?
used to simplify the general ledger (the same way special journals simplify the general journal)
- it removes the need to post individual transactions to the general ledger
- it helps with internal controls
- allows us to track activity by customer ( for A/R) or by vendor (for A?P)
