Office Accounting Exam 1 Flashcards Preview

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Flashcards in Office Accounting Exam 1 Deck (77):
1

Recording financial information in a prescribed manner

Bookkeeping

2

Language of business / Used to communicate financial information

Accounting

3

Accounting is based on six (6) functions related to financial data. What are they?

Analyzing Classifying Recording
Summarizing Reporting Interpreting

4

Looking at business events - “Transactions” - Determining their effect on the business.

Analyzing

5

Sorting and grouping similar items together. - Facilitates analysis and recording of financial information.

Classifying

6

Entering financial information about business transactions in the accounting system.
Use of computers - makes work easier

Recording

7

Bringing various items of information together. / Determining results

Summarizing

8

Telling the results of the financial information. Using tables of numbers / Describing results obtained from summarizing

Reporting

9

Deciding or Determining the meaning and importance of financial information.
What does the information say about the transactions which have occurred?
How will this information influence future business operations?

Interpreting

10

Procedures and guidelines to be followed in the accounting and reporting process. Ensures continuity in accounting and reporting processes.

Generally accepted accounting principles (GAAP). Developed by the Financial Accounting Standards Board.

11

THE ACCOUNTING ELEMENTS

Assets
Liabilities
Owner’s equity

12

Property of monetary value owned by a business

Assets

13

current asset; Unwritten promise by a customer to pay, at a later date, for goods sold or services rendered.

Accounts receivable

14

current asset; Items considered assets when acquired. / Becomes expenses when consumed or expired
Example: Prepaid insuranceDeduct each month of insurance as it is used

Prepaid expenses

15

Any debts that a business owes / Current liabilities / Fixed/long-term

Liabilities

16

Debts generally paid within one year / Accounts payable / Taxes payable

Current liabilities

17

Unwritten promise to pay creditors for property purchased on credit or for service received on credit

Accounts payable

18

Amount by which assets exceed total liabilities of a business.
Owner’s financial interest in the business. / Net worth / Capital / Proprietorship

Owners Equity

19

When owner puts money into business - When revenue (income) is generated from sale of goods and or services

Owner’s equity Increases

20

When owner takes money out of business / Expenses that have been incurred.

Owner’s equity Decrease

21

Process of recording equal debits and credits for a single business transaction.

Double entry accounting

22

Any activity of a business enterprise that involves the exchange of values.

Transaction

23

Device for recording changes in fundamental accounting elements

Account

24

Increase Decrease Assets (A) Liabilities (L) Owner’s equity (OE)

**

25

left side of a standard account
"T" account

debit

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right side of a standard account
"T" account

credit

27

The accounting equation

Assets = liabilities + owner’s equity
A = L + OE
Use of “T” accounts
Assets = liabilities + owner’s equity
(+T-) (-T+) (-T+)

28

users of the accounting information:Company’s profitability and current financial condition

Owner
(may consider additional investments, or consider closing depending on which way)

29

users of the accounting information: Detailed measures of business performance

Managers
(They make operating decisions, what type of inventory should be carried, can we hire more employees, etc.)

30

users of the accounting information: Company’s profitability, debt outstanding, and assets that could be used to secure debt

Creditors
(Should a loan be granted, if so, what amount)

31

users of the accounting information: Company’s profitability, cash flows, and overall financial condition

Government agencies
(How much income tax will the business pay)

32

classifications of businesses

service business
merchandising
manufacturing

33

classifications of businesses: Travel agency
Physician
Computer consultant

service business

34

classifications of businesses: a business that buys a product from another business to sell to customers
Department store
Pharmacy
Jewelry store

merchandising business

35

classifications of businesses: a business that makes a product to sell
Automobile manufacturer
Furniture maker
Toy factory

manufacturing business

36

an individual, association, or organization that engages in economic activities and controls specific economic resources

Business entity

37

Business entity concept

 The business entity’s finances are kept separate from the owner’s nonbusiness assets and liabilities.
 The owner of the business may have business assets and liabilities as well as nonbusiness assets and liabilities.
 Nonbusiness assets and liabilities are not included in the entity’s accounting records

38

If the owner invests money or other assets in the business, the item is now classified as a

business asset

39

items owned by a business that will provide future benefits. Property of monetary value owned by a business

assets

40

Assets must be owned and not rented, but doesn’t have to paid off. You could still be making payment on it.

***

41

a probable future outflow of assets as a result of a past transaction or event. In other words, debts or obligations of the business that can be paid with cash, goods, or services. (Has already happened, I just haven’t paid for it.)

liabilities

42

UNWRITTEN promise to pay a supplier for assets purchased or services rendered. Referred to as making a purchase “on account” or “on credit.”

accounts payable

43

***

Be careful!!! Don’t confuse accounts receivable with accounts payable. Ask yourself, are we waiting to receive? Or waiting to pay?

44

FORMAL WRITTEN promises to pay suppliers or lenders specified sums of money at definite future times. (I contracted myself in it.)

notes payable

45

Amount by which the business assets exceed total liabilities of a business

Owner’s Equity

46

Owner’s equity is also called

net worth or capital

47

(income) is generated from sale of goods and or services

revenue

48

Process of recording equal debits and credits for a single business transaction.

Double entry accounting

49

Any activity of a business enterprise that involves the exchange of values

Transaction

50

Left side of a standard account

debit

51

right side of a standard account

credit

52

standard account is known as

T account

53

provide a description of the particular type of asset, liability, or owner’s equity affected by a transaction

account titles

54

The accounting equation

Assets = liabilities + owner’s equity

55

an economic event that has a direct impact on the business

business transaction

56

3 rules for business transaction

 Usually requires an exchange with an outside entity
 We must be able to measure this exchange in dollars
 All business transactions affect the accounting equation through specific accounts

57

separate record used to summarize changes in each asset, liability, owner’s equity of a business. Device for recording changes in fundamental accounting elements

Account

58

Analyzing business transactions: Three questions

 What happened?
Make certain you understand the event that has taken place.
 Which accounts are affected?
Identify the accounts that are affected
Classify the accounts as assets, liabilities, or owner’s equity.
 How is the accounting equation affected?
Determine which accounts have increased or decreased
Make certain that the accounting equation remains in balance after the transaction has been entered.

59

Owner’s equity Transactions:
Four types:

decrease- expenses and draw
increase- revenues and investments

60

represent the amount a business charges customers for products sold or services performed.

revenues

61

3 key facts about revenue

 The amount a business charges customers for products sold or services performed
 Recognized when earned (even if cash has not yet been received)
 Increases both assets (cash or accounts receivable) and owner’s equity

62

represent the decrease in assets (or increase in liabilities) as a result of a company’s efforts to produce revenues.

expenses

63

 Either decrease assets or increase liabilities, but ALWAYS decrease owner’s equity

expenses

64

 The concept that income determination can be made on a periodic basis (month, quarter, year, etc.)

accounting period concept

65

 Any accounting period of 12 months is called a

fiscal year

66

reduce owner’s equity as a result of the owner taking cash or other assets out the business for personal use

Withdrawals (drawings)

67

Three commonly prepared financial statements:

income statement
balance sheet
statement of owner's equity

68

Reports the profitability of business operations or a specified period of time
Expenses are subtracted from revenues to determine net income/loss
Also called the profit and loss statement or operating statement

income statement

69

Report the activities that affected owner’s equity for a specific period of time
Uses net income from the income statement

statement of owner's equity

70

Confirms the accounting equation has remained in balance
Also referred to as a statement of financial position or statement of financial condition

balance sheet

71

reports assets, liabilities, and owner’s equity on a SPECIFIC DATE, not a period of time

balance sheet

72

three basic phases of the accounting process

input
processing
output

73

debit =

credit

74

left=

right

75

dr =

cr

76

A normal balance

is the side that increases

77

 A listing of all accounts and their balances
 A totaling of debits and credits
 Is proof that debits equal credits and that the accounting equation has remained in balance
 Used as an aid in preparing financial statements

trial balance