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ETH: Accounting for Managers > Lecture 02 - Part I – Financial Accounting > Flashcards

Lecture 02 - Part I – Financial Accounting Flashcards

basic journal entries

1
Q

What is a Account? (3)

What two groups of Accounts do you know? (CFS) Effekt on Balance sheet? (4)

A

Definition

  • the smallest element of the accounting system.
  • It’s used for the recording of the transactions during the year.
  • An account is made of two
    sides    , the debit and the credit side.

Position

  • Information on assets and liabilities
  • opening balance from the the balance sheet

Performance

  • Information on revenues and expenses
  • opening balance is 0
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2
Q

What does a “Chart of Accounts” do?

A

Lists the titles and numbers of all accounts found in the general ledger.

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3
Q

What are the two basic Accounting Documents? Describe each! (4)

A

journal

  • Tabular, chronological record
  • where business activities are captured in debits and credits

general ledger (the T accounts):

  • Listing of all accounts and their balances,
  • Accounts are grouped in 5 elements: Assets (A), Liabilities (L), Equity (SE), Revenues (R) and Expenses (E).
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4
Q

What is the purpose of using double-entry accounting? (3)

A
  • Records each transaction in at least two accounts: a debit and a credit.
  • Ensures the equation (assets = liabilities + equity) remains balanced.
  • Track increases and decreases in different accounts, enabling accurate financial statements.
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5
Q

Explain T-Accounts!

A

Accountants use a graphic representation of an account called a T-account.

  • Debit (-)
  • Credit (+)
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6
Q

Main steps for basic journal entries (4)

A
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7
Q

What are the components in the accounting cycle of a company? (3)

A

Opening
Contains the position account (assets and the liabilities) of a firm, at the beginning of the accounting periode.

Recording
Recorded Transactions during the year.

Closing
The balance of the accounts at the year end will be summarized in the

  • balance sheet
  • income statement.
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8
Q

What are common accounts for Assets? (4)

A
  • Cash
  • Account receivable
  • Inventory
  • Prepayments
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9
Q

What are common accounts for
Liabilities & Equity? (4)

A

Liabilities

  • Accounts Payable
    (Short-term Debt)
  • Long-term Debt

Equity

  • Common Stock
    (Shareholder’s Equity)
  • Dividends Payable
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10
Q

What are common accounts for
Expenses? (5)

A
  • Cost of sales
  • Salary / Wages
  • Rent
  • Engery
  • Maintenance
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11
Q

What are common accounts for
Revenues? (2)

A
  • Sales revenue / Dividents
  • Interest revenue
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12
Q

What are the main topics for Journal and ledger? (3/4)

A

Journal

  • Recording Transactions
  • Chronological Order
  • Debit and Credit Entries

Ledger

  • Posting from Journal
  • Individual Accounts
  • Balances and Totals
  • Trial Balance
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13
Q

What type of information does the balance sheet provide? (2)

  • What is the typical order in which accounts are listed? (5)
A

The balance sheet provides information about a business on a specific date, specifically regarding its assets, liabilities, and equity.

Therefore it summarizes the fortune and the debts of a company.

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14
Q

What is the purpose of the …

  • Opening: Balance sheet
  • Closing: Income Statement / main metrics for P&L (3)
A

Balance sheet

  • opening balance of zero at the beginning of the period.

Income statement

  • summarizes the expenses & revenues (profit / loss) at the closing date.
  • All of the shown items are typically on the Income Statement, …
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15
Q

Definition: Cash equivalent (3)

A
  • short term, high liquid investments
  • that mature in three months or less
  • can be easily converted to cash.
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16
Q

Definition: Borrowings
→ how is it reflected in the general journal

A

When a company borrows money.It normally signs a promissory note agreeing to pay the money back (including interest)
hence, the little notes payable. Often titeled Notes payable.

17
Q

Definition: Equity (2)

A
  • describe owners claims on the company.
  • For corporations, the terms shareholders equity and stockholders equity are also used to describe owners`clams. We use at three terms interchangeably.
18
Q

Income Statement
What are some other similar terms? (3)

A
  • statement of earinings
  • statement of operators
  • profit & loss statement
19
Q

Purchase made by investors on credit or on account.…

  • What is the definition,
  • recording on the balance sheet (bouth sides, buyer & seller)?

(5)

A

Buyer does not pay the seller at the time of purchase.
_

Buyer

  • Reports a liability (accounts payable), on its balance sheet
  • Liability is removed when payment is made

Seller

  • Reports an asset (accounts receivable), on its balance sheet
  • Asset is removed when the buyer pays
20
Q

Definition: Sales on credit (2)

A
  • Uncollected amounts from credit sales.
  • Pose a risk to the firm. May result in some payments not being collected.
21
Q

Debit and credit (2)

A
  • Accounting items
  • meaning left and right respectively.
22
Q

Definition: Account (2)

A
  • Captures increases and decreases
  • in assets, liabilities, equity, revenue, and expenses.
23
Q

Definition: Cash accounting (3)

A
  • Recognizes revenue when cash is received and expenses when cash is paid.
  • This approach is not acceptable under Generally Accepted Accounting Principles (GAAP).
  • GAAP requires the use of accrual accounting, which recognizes revenues and expenses when they are earned or incurred, regardless of cash transactions.
24
Q

What is the definition of “debit” and “credit”, compared to everyday speech? (2)

A
  • In everyday speech, “debit” and “credit” often have value connotations. However, in accounting, there are no value connotations associated with these terms.
  • Every event, whether positive or negative, is recorded with both a debit and a credit. This ensures that all transactions are accurately and neutrally represented within the accounting system.
25
Q

Definition: that total debits equal total credits (2)

A
  • The rule applied for each entry
  • is known as double-entry accounting, or the duality of accounting
26
Q

The normal balance of any account ..

A

.. is on the side on which increases are recorded.

27
Q

Definition: We denote the transatction`s effect …

A
  • We indicate the transaction’s impact (+/-) on assets, liabilities, and expenses, in brackets for each journal entry.
28
Q

What are some examples of revenue accounts? (2)

A
29
Q

What are some examples of asset accounts? (4)

A
30
Q

What are some examples of expense accounts? (4)

A
  1. Cost of Goods Sold (COGS)
  2. Selling, General, and Administrative Expenses (SG&A)
  3. Wages and Salaries
  4. Rent Expense
31
Q

What are some examples of equity accounts? (2)

A

ETH: Accounting for Managers (14 decks)

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