ACCT 250 GCU

Credit Pg.92

The right side of a T-account.

Accounts Receivable Pg.39

The right to receive cash in the future from customers for goods sold or for services performed.

What is the trial balance?

The trial balance summarizes the ledger by listing all the accounts with their balances. Assets are listed first, followed by liabilities, and then equity. The trial balance ensures that debits equal credits and is used to prepare the financial statements.

Residual Value Pg.166

The value of a depreciable asset at the end of its useful life.

Accounting Pg.28

The information system that measures business activities, processes the information into reports, and communicates the results to decision makers.

Debit Pg.92

The left side of a T-account.

Equity Pg.35 *Pg90 Capital Owner withdrawals Revenues Expenses

The owner's claim to the assets of the business.

International Accounting Standards Board (IASB) Pg.33

The private organization that oversees the creation and governance of International Financial Reporting Standards (IFRS).

Financial Accounting Standards Board (FASB) Pg.31

The private organization that oversees the creation and governance of accounting standards in the United States.

Depreciation Pg.166

The process by which businesses spread the allocation of a plant asset's cost over its useful life.

Ledger Pg.91

The record holding all the accounts of a business, the changes in those accounts, and their balances.

Net Loss Pg.36

The result of operations that occurs when total expenses are greater than total revenues.

Net Income Pg.36

The result of operations that occurs when total revenues are greater than total expenses.

When to Record Revenue Pg.161 The Amount of Revenue to Record

The revenue recognition principle requires companies to record revenue when it has been earned—but not before. Revenue is recorded for the actual selling price of the item or service transferred to the customer.

Correcting Trial Balance Errors Pg.112

1. Search the trial balance for a missing account. 2. Divide the difference between total debits and total credits by 2. 3. Divide the out-of-balance amount by 9.

Corporation Pg.32

A business organized under state law that is a separate legal entity.

Sole Proprietorship Pg.32

A business with a single owner.

Partnership Pg.32

A business with two or more owners and not organized as a corporation.

Limited-Liability Company (LLC) Pg.32

A company in which each member is only liable for his or her own actions.

Straight-line Method Pg.166

A depreciation method that allocates an equal amount of depreciation each year. (Cost − Residual value) ∕ Useful life.

Account Pg.88

A detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period.

Compound Journal Entry Pg.101

A journal entry that is characterized by having multiple debits and/or multiple credits.

Trial Balance Pg.111

A list of all ledger accounts with their balances at a point in time. The trial balance summarizes the ledger by listing all the accounts with their balances—assets first, followed by liabilities, and then equity. The account balances are taken directly from the trial balance and are used to prepare the income statement, statement of owner's equity, and balance sheet. In

Chart of Accounts Pg.90

A list of all of a company's accounts with their account numbers.

Prepaid Expense Pg.89

A payment of an expense in advance.

Cost Principle Pg.32

A principle that states that acquired assets and services should be recorded at their actual cost.

Journal Pg.96

A record of transactions in date order. *Pg.96 We post from the journal to the ledger. Debits in the journal are posted as debits in the ledger and credits as credits—no exceptions.

International Financial Reporting Standards (IFRS) Pg.33

A set of global accounting guidelines, formulated by the International Accounting Standards Board (IASB).

Accounts Payable Pg.38

A short-term liability that will be paid in the future.

T-Account Pg.92

A summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits on the right side of the vertical line. Pg.94 T-accounts can be used to determine the amount remaining in an account or the balance of the account.

Double-Entry System Pg.92

A system of accounting in which every transaction affects at least two accounts.

Notes Receivable Pg.89

A written promise that a customer will pay a fixed amount of money and interest by a certain date in the future.

Generally Accepted Accounting Principles (GAAP) Pg.31

Accounting guidelines, currently formulated by the Financial Accounting Standards Board (FASB); the main U.S. accounting rule book.

Cash Basis Accounting Pg.158

Accounting method that records revenue only when cash is received and expenses only when cash is paid. As a result, revenues are only recorded when cash is received and expenses are only recorded when cash is paid. not allowed under Generally Accepted Accounting Principles (GAAP)

Accrual Basis Accounting Pg.158

Accounting method that records revenue when earned and expenses when incurred.

Revenues Pg.35

Amounts earned from delivering goods or services to customers.

What is an account?

An account is a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period. Common asset accounts: Cash, Accounts receivable, Notes Receivable, Prepaid Expenses, Land, Building, Furniture Common liability accounts: Accounts Payable, Notes Payable, Taxes Payable, Salaries Payable, Unearned Revenue Common equity accounts: Owner's Capital, Owner's Withdrawals, Revenues, Expenses A chart of accounts lists a company's accounts along with account numbers. A ledger shows the increases and decreases in each account along with their balances.

Fiscal Year Pg.160

An accounting year of any twelve consecutive months that may or may not coincide with the calendar year.

Adjusting Entry Pg.163

An entry made at the end of the accounting period that is used to record revenues to the period in which they are earned and expenses to the period in which they occur.

Transaction Pg.36

An event that affects the financial position of the business and can be measured reliably in dollar amounts.

Audit Pg.34

An examination of a company's financial statements and records.

Economic Entity Assumption Pg.32

An organization that stands apart as a separate economic unit.

Time Period Concept Pg.160

Assumes that a business's activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.

Going Concern Assumption Pg.33

Assumes that the entity will remain in operation for the foreseeable future.

Financial Statements Pg.42

Business documents that are used to communicate information needed to make business decisions.

Certified Management Accountants (CMAs) Pg.30

Certified professionals who specialize in accounting and financial management knowledge. They typically work for a single company.

Controllers Pg.30

Compile financial statements, interact with auditors, and oversee regulatory reporting.

Liabilities Pg.35 *Pg.89 Accounts Payable Notes payable Accrued Liability Unearned Revenue

Debts that are owed to creditors.

What is double-entry accounting?

Double-entry accounting requires transactions to be recorded into at least two accounts. The T-account is shaped like a capital "T" with debits posted to the left side of vertical line and credits posted to the right side of the vertical line. Debit = Left Credit = Right Assets, Owner's Withdrawals, and Expenses are increased with a debit and decreased with a credit. Liabilities, Owner's Capital, and Revenues are increased with a credit and decreased with a debit. The normal balance of an account is the increase side of an account.

Assets Pg.35 *Pg. 89 Cash Accounts Receivable Notes Receivable Prepaid Expense Equipment, furniture, and fixtures Building Land

Economic resources that are expected to benefit the business in the future. Something the business owns or has control of.

How do you prepare financial statements?

Financial statements are prepared in the following order: 1. Income Statement: Reports the net income or net loss of a business for specific period Revenues- Expenses = Net Income or Net Loss 2. Statement of Owner's Equity: Reports on the changes in owner capital for a specific period Capital, beginning+ Owner Contributions + Net Income - Owner Withdrawals - Net Loss = Capital, ending 3. Balance Sheet: Reports on an entity's assets, liabilities, and owner's equity as of a specific period date. Assets= Liabilities + Equity Statement of Cash Flows: Reports on a business's cash receipts and cash payments during a period. Includes three sections: Cash flows from operating activities, cash flow from investing activities, and cash flows from financing activities.

Matching Principle Pg.161

Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those expenses against the revenues of the period

Tax accountants Pg.30

Help companies navigate tax laws.

How do you use financial statements to evaluate business performance?

Income statement evaluates profitability. ■ Statement of owner's equity studies the amount of earnings that were kept and reinvested in the company. ■ Balance sheet details the economic resources the company owns as well as debts the company owes. ■ Statement of cash flows shows the change in cash. ■ Return on assets (ROA) = Net income / Average total assets

Certified Public Accountants (CPAs) Pg.29

Licensed professional accountants who serve the general public.

Plant Assets Pg.165

Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business. We record no depreciation for land, as its value typically does not decline with use.

Owner's Capital Pg.35

Owner contributions to a business.

Owner's Withdrawals Pg.36

Payments of equity to the owner.

Auditors Pg.30

Perform reviews of companies to ensure compliance to rules and regulations.

Statement of Cash Flows Pg.42

Reports on a business's cash receipts and cash payments for a specific period.

Balance Sheet Pg.42

Reports on the assets, liabilities, and owner's equity of the business as of a specific date.

Income Statement Pg.42

Reports the net income or net loss of the business for a specific period.

Revenue Recognition Principle Pg.160

Requires companies to record revenue when it has been earned and determines the amount of revenue to record.

Sarbanes-Oxley Act (SOX) Pg.34

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Financial analysts Pg.30

Review financial data and help to explain the story behind the numbers.

Statement of Owner's Equity Pg.42

Shows the changes in the owner's capital account for a specific period.

Debt Ratio Pg.113

Shows the proportion of assets financed with debt. Total liabilities / Total assets.

How do you record transactions?

Source documents provide the evidence and data for transactions. Transactions are recorded in a journal and then the journal entries are posted (transferred) to the ledger. Transactions are journalized and posted using five steps: Step 1: Identify the accounts and the account type. Step 2: Decide whether each account increases or decreases using the rules of debits and credits. Step 3: Record the transaction in the journal. Step 4: Post the journal entry to the ledger. Step 5: Determine whether the accounting equation is in balance.

Journalizing and posting process Pg. 97

Step 1: Identify the accounts and the account type (asset, liability, or equity). Step 2: Decide whether each account increases or decreases using the rules of debits and credits. Step 3: Record the transaction in the journal. Step 4: Post the journal entry to the ledger. Step 5: Determine whether the accounting equation is in balance.

Monetary Unit Assumption Pg.33

The assumption that requires the items on the financial statements to be measured in terms of a monetary unit.

Normal Balance Pg.93

The balance that appears on the increase side of an account.

Accounting Equation Pg.35

The basic tool of accounting, measuring the resources of the business (what the business owns or has control of) and the claims to those resources (what the business owes to creditors and to the owner). Assets = Liabilities + Equity

How do you use the debt ratio to evaluate business performance?

The debt ratio can be used to evaluate a business's ability to pay its debts. Debt ratio = Total liabilities ∕ Total assets

Financial Accounting Pg.28

The field of accounting that focuses on providing information for external decision makers.

Managerial Accounting Pg.28

The field of accounting that focuses on providing information for internal decision makers.

The Four-Column Account Pg.109

The four-column account still has debit and credit columns, but it also adds two additional columns that are used to determine a running balance.

Posting Pg.97

Transferring data from the journal to the ledger. *Pg.96 We post from the journal to the ledger. Debits in the journal are posted as debits in the ledger and credits as credits—no exceptions.

Cost accountants Pg.30

Typically work in a manufacturing business. Help analyze accounting data.

Securities and Exchange Commission (SEC) Pg.31

U.S. governmental agency that oversees the U.S. financial markets.

Business systems Pg.30 analysts

Use accounting knowledge to create computer systems.

Prepaid Expenses Pg.163

are advance payments of future expenses. Prepaid xpenses are always paid for before they are used up. Prepaid Rent Office Supplies

annual accounting period Pg.160

is the calendar year, from January 1 through December 31.

How do you analyze a transaction?

■ A transaction affects the financial position of a business and can be reliably measured. ■ Transactions are analyzed using three steps: 1. Identify the accounts and account type (Asset, Liability, or Equity) 2. Decide whether each account increases or decreases. 3. Determine whether the accounting equation is in balance.

What is the accounting equation?

■ Assets = Liabilities + Equity

What are the organizations and rules that govern accounting?

■ Generally Accepted Accounting Principles (GAAP) are the rules that govern accounting in the United States. ■ The Financial Accounting Standards Board (FASB) is responsible for the creation and governance of accounting standards (GAAP).

Why is accounting important?

■ It's the language of business. ■ Accounting is used by decision makers including individuals, businesses, investors,creditors, and taxing authorities. ■ Accounting can be divided into two major fields: financial accounting and managerial accounting. ■ Financial accounting is used by external decision makers and managerial accounting is used by internal decision makers. ■ All businesses need accountants. Accountants work in private, public, and governmental jobs. ■ Accountants can be licensed as either a certified public accountant (CPA) or certified management accountant (CMA).