Accounting Exam 1 Knox

T-Accounts

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.

Double-entry System

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

Notes Payable

A written promise made by the business to pay a debt, usually involving interest, in the future.

Notes Receivable

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

Going Concerns Assumption

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

Equity Equation

Capital, Beginning + Owner's Contribution + Net Income or - Net loss - Owner Withdraw = Capital, Ending

Gibson contributed 10,000 to the business in exchange for capitol.

Increase Assets (Cash); Increase Equity (Gibson Capitol)

Earned and received 2500 cash for services rendered.

Increase Assets (cash); Increase Equity (Service Revenue)

Purchased equipment, signed a note payable

Increase Assets (equipment) Increased Liability (notes payable)

Purchased equipment for 5,000 on account.

Increase Assets (equipment); Increase Liability (Accounts Payable)

Paid 400 for Office Supplies

Increase Assets (office supplies); Decrease Assets (cash)

Employees worked for the week but will be paid next week Tuesday.

Increase Liability ( salaries payable); Decrease Equity ( salaries expense)

Received a bill for 250 for the monthly utilities. This bill has not been paid yet.

Increase Liability (accounts payable); Decrease Equity ( utility expense)

Borrowed money from the bank.

Increase assets ( cash); Increase Liability (note payable)

Sam's snack foods received cash from owner and gave capitol.

Increase assets (cash); Increase Equity ( Sam, Capital)

Incurred utilities expense on account

Increase liability (accounts payable); Decrease equity (utility expense)

Debit

Left side of the T-Accounts.

Notes Payable (accounting equation)

Liability

Taxes Payable

Liability

Unearned Revenue (accounting equation)

Liability

Certified Public Accountants (CPA's)

Licensed Professional accountants who serve the general public.

Return on Assets (ROA)

Measures how profitable a company uses its assets. Net income/ Average total assets.

Owner's Capital

Owner contributions to a business

Accounting

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

Equity

The owner's claims to the assets of business.

Financial Accounting Standards Board (FASB)

The private organization that oversees the creation and governance of accounting standards in the U.S.

International Accounting Standards Board (IASB)

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

Net Loss

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

Net Income

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

Accounts Receivable

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

Posting

Transferring data from the journal to ledger.

Securities and Exchange Commission (SEC)

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

Sole Proprietorship

a business with a single owner.

Nunez, Withdraw

equity

Normal Balance: Office Supplies

Debit

Normal Balance: Utility Expense

Debit

Account

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

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

Unearned Revenue

A liability created when a business collects cash from customers in advance of providing services or delivering goods.

Accrued Liability

A liability for which the business knows the amount owed but the bill has not been paid yet.

Trail Balance

A list of all ledger accounts with their balances at a point in time.

Prepaid Expense

A payment of an expense in advance.

Cost Principals

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

Journal

A record of transactions in date order.

Performed services for a customer on account.

Increase Assets ( accounts receivable); Increase Equity ( service revenue)

Received cash from a customer on accounts receivable.

Increase Assets ( cash); Decrease Assets ( accounts receivable)

International Financial Reporting Standards (IFRS)

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

Accounts Payable

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

Corporation

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

Partnership

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

Limited Liability Company (LLC)

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

Generally Accepted Accounting Principals (GAAP)

Accounting guidelines, currently formulated by the FASB; the main U.S. accounting rule.

Revenue

Amount earned form delivering goods and services to customers. Increase Owners Equity (Credit)(credit) Income statement

Transactions

An event that affects the financial position of the business and can be measured with faithful representation.

Audit

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

Economic Entity Assumption

An organization that stands apart as a separated economic unit.

Creditor

Any person or business to whom a business owes money.

Furniture

Assets

Notes receivable

Assets

Prepaid Insurance

Assets

Earned 1000 for services provided. Customer has not paid yet.

Increase Assets (Accounts Receivable); Increase Equity (Services revenue)

Financial Statements

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

Managerial Accounting

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

Certified Management Accountants (CMA's)

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

Normal Balance: Herman Capitol

Credit

Normal Balance: Interest Payable

Credit

Normal Balance: Notes Payable

Credit

Normal Balance: Service Revenue

Credit

Normal Balance: Unearned Revenue

Credit

Decrease to Unearned revenue

Debit

Increase to Accounts Reciveable

Debit

Normal Balance: Advertising Expense

Debit

Normal Balance: Herman, Withdraw

Debit

Normal Balance: Land

Debit

Liabilities

Debts that are owned to creditors. (credit)(credit) Balance Sheet

Paid cash on Accounts Payable.

Decrease Assets (cash) Decrease Liability ( accounts payable)

Cash purchase of land for a building site.

Decrease Assets (cash) Increases Assets (Land)

Paid 400 for wages to employees.

Decrease Assets (cash); Decrease Equity ( W. Expense)

Owner withdrew cash.

Decrease assets (cash); Decrease equity (owner withdraw)

Paid 1000 rent.

Decrease assets (cash); Decrease revenue (rent expense)

Gibson withdrew 1000 cash.

Decrease assets (cash); Decrease Equity ( Owners Withdraw)

Assets

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

Nunez, Capitol

Equity

Rent Expenses

Equity

Rent Revenue

Equity

Owners Withdraw

Payments of equity to the owner.

Source Document

Provides the evidence and data for accounting transactions.

Faithful Representation

Providing information that is complete, neutral, and free from error.

Statement of Cash Flows

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

Balance Sheet

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

Income Statements

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

Sarbanes-Oxley Act (SOX)

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

Credit

Right side of the T-Account.

Statement of Owners Equity

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

Debt Ratio

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

Monetary Unit Assumption

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

Normal Balance

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

Accounting Equation

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.

Expenses

The costs of selling goods and services.

Financial Accounting

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