Accounting Midterm Study Guide
What are the different forms of business ownership?
Proprietorship Partnership Corporation
Income Statement
A financial statement that represents revenues and expenses, which shows net income or net loss for a period of time.
Accrual Method
Measures in and outflows of all transactions, events, circumstances, when they occur regardless of whether cash flows are involved.
Companies record only events that can be measured in money. - The health of a company's owner or the quality of service are not examples of this. - used in the Historical cost Principle
Monetary Unit Assumption
What are the two primary qualities useful for decision-making in accounting?
Relevance Faithful Representation
Trial Balance
list of all ledger accounts & balances.
Revenue
the total amount a company receives from selling goods and/or providing services to its customers.
What are the steps included in the accounting process?
1. Transactions Documentation 2. Journal 3. Ledger 4. Trail Balance 5. Financial Statements
What is the fundamental equation of accounting?
Assets + Liabilities =Stockholders Equity
Requires to keep personal activities separate from activities within the business. -ex. shopping for new clothes or furniture for your new home.
Economic Entity Assumption
Common Stock
a representation of partial ownership in a company that most people invest in.
Retained Earnings
all the profits a company has earned but not paid out to shareholders in the form of dividends. - determine by revenues, expenses, and dividends
Fair Value Principle
assets & liabilities should report at fair value (the price received to sell an asset or settle a liability)
Historical Cost Principle
companies record assets at their cost, they can't change the price even if it's higher now than it was before.
Dividends
income that shareholders of corporations receive for each share of stock that they hold.
Expense
the money spent on things that won't last you in the future.
Cash-flow Method
used by small businesses due to its fairness and simplicity. - unrealistic: many events are initially on credit.
Ledger Cash Ledger
used for recording all of a company's transactions in balance sheets and income-statement transactions. - Cash Ledger: cash in - cash out = cash balance