Accounting 101 Test #1
Every business is accounted for separately from its owner or owners.
Business Entity Assumption
Time Period
Last day of accounting period or a set period of time (need to have a time frame)
An accounting area that includes planning future transactions to minimize taxes paid.
Tax Accounting
A business reports its own office stationary on the balance sheet at its $400 cost, although it cannot be sold for more than $10 as scrap paper. Which accounting principle and/or assumption justifies this treatment?
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Define "net income" and explain its computation.
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Describe the three basic forms of business organizations and their key attributes.
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How do ethics rules affect auditors' choice of clients?
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What does the concept of objectivity imply for information reported in financial statements? Why?
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Why is the revenue recognition principle needed? What does it demand?
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Draw
Always a debit for Normal
ASSETS = LIABILITY + EQUITY
Assets = Liability + Equity + Revenue - Expense
What info is reported on the balance sheet?
Assets, Liabilities, Equity
Assets, Liabilities, Equity, Revenues
Assets- Things you own Liabilities- Things you owe Equity- Your investment in the company Revenues- Income you earn
An examination of an organization's accounting system and records that adds credibility to financial statements
Audit
Information is based on actual costs incurred in transactions.
Cost Principle
GAAP Rules
Cost Principle Revenue Recognition Matching Full Disclosure Going Concern Monetary Unity Time Period Entity Pain
Debit entries increase debit balances and credits decrease them
Credit entries increase credit balances and debits decrease them
Principles that determine whether an action is right or wrong
Ethics
Cost Principle
Every transaction is reported at cost
Full Disclosure
Everything must be disclosed
Monetary Unit
FILL THIS ONE IN LATER
FASB
Financial Accounting Standards Board (group that makes the rules for accounting)
A company reports details behind financial statements that would impact users' decisions.
Full disclosure principle
GAAP
Generally Accepted Accounting Principles
Financial statements reflect the assumption that the business continues operating.
Going-Concern Assumption
Matching
If you report the revenue in an accounting period, you must report expense in the same period
Four Primary Financial Statements
Income Statement, Capital Statement, Balance Sheet, and Cash Flow
General Ledger
Main book for Accounting
Amount a business earns in excess of all expenses and costs associated with its sales and revenues
Net Income
Accounting professionals who provide services to many clients
Public Accountants
Give two examples of expenses a business might incur
Rent, utilities, advertising, labor
Revenue is recorded only when the earnings process. is complete.
Revenue Recognition Principle
What info is reported in an income statement?
Revenue, Expenses, Net Income
Identify three actual businesses that offer services and three actual businesses that offer products.
Services: Copper Cabin Kennel (Groomer), Car Wash, Lawn Mowing Products: Apple, Amazon, Lowes
3 Forms of Business
Sole Proprietorship, Partnerships, Corporations
A company records the expenses incurred to generate the revenue reported.
Specific Accounting Principle
Technology is increasingly used to process accounting date. Why then must we study and understand accounting?
We must understand the theory
Revenue Recognition
We recognize revenue when we earn it (not liabilities)
What is the purpose of the statement of owner's equity
We want to see what the owners did (they should never draw bigger than profit)
Going Concern
When we issue a financial statement, we expect the company to continue business
Entity Pain
You must identify who you're talking about
Trial Balance
a statement of all debits and credits in a double-entry account book, with any disagreement indicating an error. Each column with have the same total... because credits = debits
Why is accounting described as a service activity?
because a service, rather than a product, is being provided
Identify four kinds of external users and describe how they use accounting information.
lawyers, shareholders, lenders, labor unions, internal revenue service
Identify three types of services typically offered by accounting professionals.
taxes, auditing, management counseling, bookkeeping, accounting