Accounting Review

auditing

involves the application of standard review and testing procedures to be certain that proper accounting policies and practices have been followed. the purpose is to provide an independent opinion that the financial info about a business is fairly presented in a manner consistent with generally accepted accounting principles

the group of accounts which you credit when increased are

liabilites and capital

certified public accountant

public accountants who achieve professional recognition. this is done by meeting certain educational and experience requirements as determined by each state and passing a uniform examination prepared by the american institute of CPAs.

forensic accounting

rapidly growing segment of accounting practice. it includes fraud detection, fraud prevention, litigation support, business valuations, expert witness services, and other investigative activities. people who do this often also work for insurance companies, banks, law enforcement agencies, and other organizations.

processing

recognizing the effect of transactions on the assets, liabilities, o.e., revenue and expenses of a business.

the second step of the accounting process is

recording

withdrawals

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

statement of o.e.

report beginning capital plus net income less withdrawals to compute ending capital.

the fifth step of the accounting process is

reporting

balance sheet

reports assets, liabilities, and owners equity on a specific date. it confirms that the accounting equation is in balance.

income statement

reports the profitability of business operations for a specific period of time.

generally accepted accounting principles are

rules the securities and exchange commission has over certain firms for them to follow when preparing financial statements.

classifying is

sorting and grouping similar items together rather than merely keeping a simple, diary like record of numerous events.

the fourth step of the accounting process

summarizing

reporting is

telling the results.

controller

the accountant who oversees the entire accounting process and is the principal accounting officer of a company.

accounting equation

the accounting equation consists of the three basic accounting elements, Assets = Liabilities + O.E.

summarizing is

the aggregation of many similar events to provide info that is easy to understand.

revenues

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

owner's equity

the amount by which the business assets exceed the business liabilities.

accounting period concept

the concept that income determination can be made on a periodic basis

business entity concept

the concept that nonbusiness assets and liabilities are not included in the business entity's accounting records

balance

the difference between the footings of an account

net loss

the excess of total expenses over total revenues for a period

net income

the excess of total revenues over total revenues for the period

output

the financial statements are the output of the accounting info system.

cross reference

the info in the posting reference columns of the journal and ledger that provides a link between the journal and ledger

book of original entry

the journal or the first formal accounting record of a transaction

debit balance

the normal balance of asset, expense, and drawing accounts

credit balance

the normal balance of liability, o.e. and revenue accounts

budgeting

the process in which accountants help managers develop a financial plan.

normal balance

the side of an account that is increased

footings

the total dollar amounts on the debit and credit sides of an account

debit

to enter an amount on the left side of an account

credit

to enter an amount on the right side of an account

sole proprietorship is..

a business owned by one owner. the owner assumes all risk and makes all decisions

merchandising business

a business that buys a product from another business to sell to customers

service business

a business that provides a service. others sell products.

general ledger

a complete set of all the accounts used by a business. the general ledger accumulates a complete record of the debits and credits made to each acount as a result of entries made in the journal.

journal

a day by day listing of the transactions of a business

certified fraud examiner

a forensic accountant who has passed the exam offered by the association of certified fraud examiners.

notes payable

a formal written promise to pay a supplier or lender a specified sum of money at a definite future time

two column general journal

a journal with only two amount columns, one for debit amounts and one for credit amounts.

chart of accounts

a list of all accounts used by a business

trial balance

a list of all accounts, showing the title and balance of each account, used to prove that the sum of the debits equals the sum of the credits.

trial balance

a list used to prove that the totals of the debit and credit balances in the ledger accounts are equal.

liquidity

a measure of the ease with which an asset will be converted to cash

accrual basis of accounting

a method of accounting under which revenues are recorded when earned and expenses are recorded when incurred.

ruling method

a method of correcting an entry in which a line is drawn through the error and the correct info is placed above it.

account

a separate record used to summarize changes in each asset, liability, and owner's equity of a business

double-entry accounting

a system in which each transaction has a dual effect on the accounting elements

accounting

a system of gathering financial information about a business and reporting this information to users.

accounting information systems

accountants in this area design and implement manual and computerized accounting systems.

a ledger is a book of...

accounts

the memory device for remembering the six steps of the accounting process is

all red cars sound really interesting

general ledger account

an account with columns for the debit and credit transaction and columns for the debit or credit running balance.

certified management accountant

an accountant who has passed an exam offered by the institute of management accountants

accounts recievable

an amount owed to a business by its customers as a result of the sale of goods or services

business transaction

an economic event that has a direct impact on the business

correcting entry

an entry to correct an incorrect entry that has been journalized and posted to the wrong account

slide error

an error that occurs when debit or credit amounts slide a digit or two to the left or right.

transposition error

an error that occurs when two digits are reversed.

business entity

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

certified internal auditor

an internal auditor who has achieved professional recognition by passing the uniform examination offered by the institute of internal auditors.

asset

an item that is owned by a business and will provide future benefits

accounts payable

an unwritten promise to pay a supplier for assets purchases or services received

the first step of the accounting process is

analyzing

statement of financial position

another name for the balance sheet, which reports assets, liabilities, and o.e. on a specific date

statement of financial condition

another name for the balance sheet, which reports assets, liabilities, and o.e. on a specific date.

profit and loss statement

another name for the income statement, which reports the profitability of business operations for a specific period of time.

operating statement

another name for the income statement, which reports the profitability of business operations for a specified period of time.

net worth

another term for o.e., the amount by which the business assets exceed the business liabilities

capital

another term for o.e., the amount by which the business assets exceed the business liabilities.

fiscal year

any accounting period of 12 month's duration

source document

any document that provides info about a business transaction

the group of accounts which you debit when increased are

assets and expenses

input

business transactions provide the necessary input for the accounting info system.

accounting clerk

business with large quantities of accounting tasks to perform daily often employ these to record, sort and file accounting info. often they will specialize in cash, payroll, accounts receivable, accounts payable, inventory or purchases.

the third step of the accounting process is

classifying

posting

copying the debits and credits from the journal to the ledger accounts

interpreting is

deciding the meaning and importance of the info in various reports.

accountants

design the accounting info system and focus on analyzing and interpreting info.

cost accounting

determining the cost of producing specific products or providing services and analyzing for cost effectiveness.

The basic accounting theory is based on...

double entry

recording is

entering financial information about events into the accounting system.

journalizing

entering the transactions in a journal

bookeepers

generally supervise the work of accounting clerks, help with daily accounting work, and summarize accounting info. in small to medium size businesses, they may also help managers and owners interpret the accounting info. they usually have one to two years of accounting education and experience as an accounting clerk.

fiscal year

a 12 month period for which financial reports are prepared.

account form of balance sheet

a balance sheet in which the assets are on the left and the liabilities and o.e. are on the right

report form of balance sheet

a balance sheet in which the liabilities and then o.e. sections are shown below the assets section.

classified balance sheet

a balance sheet with separate categories for current assets; property, plant, and equipment; current liabilities; and long term liabilities.

manufacturing business

a business that makes a product to sell

straight-line depreciation

a depreciation method in which the depreciable cost is divided by the estimated useful life.

work sheet

a form used to pull together all of the information needed to enter adjusting entries and prepare the financial statements.

compound entry

a general journal entry that affects more than two accounts

modified cash basis

a method of accounting that combines aspects of the cash and accrual methods. it uses the cash basis for recording revenues and most expenses. exceptions are made when cash is paid for assets with useful lives greater than one accounting period.

cash basis of accounting

a method of accounting under which revenues are recorded when cash is received and expenses are recorded when cash is paid.

depreciation

a method of matching an asset's original cost against the revenues produced over its useful life.

historical cost principle

a principle that requires assets to be recorded at their actual cost.

matching principle

a principle that requires the matching of revenues earned during an accounting period with the expenses incurred to produce the revenues.

income summary

a temporary account used in the closing process to summarize the effects of all revenue and expense accounts.

permanent accounts

accounts that accumulate info across accounting periods; all accounts reported on the balance sheet.

temporary accounts

accounts that do not accumulate info across accounting periods but are closed, such as the drawing account and all income statement accounts.

contra-asset

an account with a credit balance that is deducted from the related asset account on the balance sheet.

plant assets

assets of a durable nature that will be used for operations over several years. examples include buildings and equipment.

long-term assets

assets that are expected to serve the business for many years

plant assets

assets that are expected to serve the business for many years.

a profit and loss statement can be prepared....

at any time

current assets

cash and assets that will be converted into cash or consumed within either one year or the normal operating cycle of the business, whichever is longer.

a person to whom a debt is owed is called a

creditor

land does not qualify as a....

current asset

the difference between costs of goods sold and their selling price is

gross profit

another term for the profit and loss statement is....

income statement

the sixth step of the accounting process is

interpreting

adjusting entries

journal entries made at the end of an accounting period to reflect changes in account balances that are not the direct result of an exchange with an outside party.

current liabilities

liabilities that are due within either one year or the normal operating cycle of a business, whichever is longer and that are to be paid out of current assets.

a written promise of a customer to pay the business a sum of money at a future date is called a

note receivable

long term liabilities (long term debt)

obligations that are not expected to be paid within a year and do not require the use of current assets.

post-closing trial balance

prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts.

FICA refers to

social security

liability

something owed to another business entity

market value

the amount an item can be sold for under normal economic conditions

depreciable cost

the cost of an asset that is subject to depreciation.

expenses

the decrease in assets, or increase in liabilities, as a result of efforts to produce revenue.

undepreciated cost

the difference between the asset account and its related accumulated depreciation account. also known as book value.

book value

the difference between the asset account and its related accumulated depreciation account. the value reflected by the accounting records.

salvage value

the expect market value of an asset at the end of its useful life

operating cycle

the period of time required to purchase supplies and services and convert them back into cash

useful life

the period of time that an asset is expected to help produce revenues

closing process

the process of giving zero balances to the temporary accounts so that they can accumulate info for the next accounting period

accounting cycle

the steps involved in accounting for all the business activities during an accounting period.

adjusted trial balance columns

the third pair of amount columns on the work sheet. they are used to prove the equality of the debits and credits in the general ledger accounts after making all end of period adjustments.

balance sheet columns

the work sheet columns that show the amounts that will be reported in the balance sheet and the statement of o.e.

income statement columns

the work sheet columns that show the amounts that will be reported in the income statement.

drawing

withdrawals that reduce o.e. as a result of the owner taking cash or other assets out of the business for personal use.

the excess of current assets over current liabilities is called

working capital

analyzing is

looking at events that have taken place and thinking about how they affect the business

a partnership is....

owned by more than one person. the partners share risks.

a corporation is..

owned by stockholders (or shareholders), they have limited risk may have many owners, usually employ professional managers.

para-accountants

provide many accounting, auditing, or tax services under the direct supervision of an accountant. typical ones have two year degrees or significant accounting and bookeeping experience

account title

provides a description of a particular type of asset, liability, owner's equity, revenue, or expense

management advisory services

providing advice to businesses on a wide variety of managerial issues