input stringlengths 3 64 | output stringlengths 40 3.16k | Instruction stringclasses 1
value |
|---|---|---|
Accounting Equation | In addition to the general ledger having debits equal to credits, the account balances must satisfy the accounting equation, which is: Assets = Liabilities + Stockholders’ Equity Asset accounts (normally debit balances) include: • Cash • Accounts receivable • Inventory • Prepaid expenses • Equipment For personal u... | This is a cheet sheet Question |
Example 1 | If Jay Corporation borrows $10,000 from its bank, Jay Corporation’s asset Cash increases by $10,000 and its liability Loans Payable increases by $10,000. Thus, the accounting equation remains in balance. The debits and credits are as follows: debit Cash for $10,000; credit Loans Payable for $10,000. If Jay Corporation ... | This is a cheet sheet Question |
Recording Revenues and Expenses | When a corporation earns revenues (such as fees for having provided services for a client), the corporation’s assets will increase and its stockholders’ equity will increase. Similarly, when the corporation pays its monthly rent, the corporation’s assets decrease and its stockholders’ equity decreases. Since a corporat... | This is a cheet sheet Question |
Accrual Method of Accounting | The accrual method (as opposed to the cash method) of accounting is the preferred method for measuring and reporting a corporation’s revenues, expenses, gains, losses, and net income for a month, year, etc. The accrual method is also the preferred method for reporting a corporation’s assets, liabilities, and stockholde... | This is a cheet sheet Question |
Adusting Entries | For a company’s financial statements to comply with the accrual method of accounting, it is likely that some adjusting entries must be recorded before the financial statements are issued. Typically, the adjusting entries include recording some expenses that have occurred, but the bookkeeper did not yet record the trans... | This is a cheet sheet Question |
Financial Statements | The main objective of recording the huge number of business transactions is to generate a complete set of financial statements. The complete set includes the following: • Balance sheet (or statement of financial position) • Income statement (or statement of earnings, statement of operations, profit and loss) • State... | This is a cheet sheet Question |
Internal Controls | It is critical that a company have internal controls to safeguard its assets. In the area of accounting and bookkeeping, it is best to separate some of the duties. In other words, instead of one person handling the cash, recording the amounts in the accounts, making the bank deposits, reconciling the bank statement, an... | This is a cheet sheet Question |
Bank Reconciliation | As often as is feasible and soon after a bank statement is received, the company should reconcile the bank statement. This involves comparing the detailed information on the bank statement with the detailed information in the company’s pertinent general ledger account. The bank reconciliation is important for several r... | This is a cheet sheet Question |
Accounts Receivable | Accounts receivable arise when a company sells goods on credit. For instance, some companies provide its customers with goods and/or services and allow them to pay the amount owed 30 days later. If a customer does not pay the amount owed, the company will report Bad Debts Expense for the amount not collected. Because o... | This is a cheet sheet Question |
Accounts Payable | Accounts payable is a general ledger liability account containing the amounts owed to vendors/ suppliers. The amount owed is supported by vendor invoices that have been entered in the accounting system. To avoid entering a bogus invoice or an incorrect invoice amount, it is common to use what is known as the three-way ... | This is a cheet sheet Question |
Bonds | Bonds are a form of long-term debt for the issuer. (For the buyer of the bonds, the bonds are an investment.) | This is a cheet sheet Question |
Bonds Payable | As part of the entry to record the issuance of bonds, the issuer will record the face value of the bonds in a long-term (or noncurrent) liability account entitled Bonds Payable. Typically the issuer of the bonds agrees to pay the bondholders: • interest every six months (semiannually), and • the face or maturity valu... | This is a cheet sheet Question |
Face Value of Bonds | The amount appearing on the face of the bonds is also known as the following: • face value • par value • principal amount • stated value • maturity value | This is a cheet sheet Question |
Interest Rate on Bonds | The interest rate shown on the face of the bonds is the annual interest rate that will be used to determine the semiannual interest payments. This interest rate is also known as: • face interest rate • stated interest rate • contractual interest rate • nominal interest rate • coupon interest rate Typically the sta... | This is a cheet sheet Question |
Market Interest Rates | We stated that the bonds’ semiannual interest payments and maturity value are both fixed in amount. However, the market interest rates for similar bonds are likely to change daily due to events occurring throughout the world. The market interest rate is also known as: • effective interest rate • yield-to-maturity • ... | This is a cheet sheet Question |
Existing Bonds | When market interest rates decrease, the value of existing bonds will increase. The reason is the fixed amounts of the cash payments (interest and maturity value) will become more attractive and therefore more valuable. When market interest rates increase, the value of existing bonds will decrease. The reason is the fi... | This is a cheet sheet Question |
Bonds Sold at Par Value | When a corporation offers bonds having a stated interest rate of say 8% and the market interest rate for similar bonds is 8%, the bonds will sell at their par or maturity value. Bonds selling at their par value are said to be sold at 100, which means 100% of the bonds par value. Therefore, a $100,000 bond will sell for... | This is a cheet sheet Question |
Bonds Sold at a Discount | If bonds having a stated interest rate of 8% are offered on a day when the market interest rate is 8.2%, the bonds will sell for less than their par or maturity value. Perhaps the bonds will sell for 98 or 98% of face value. This means that a $100,000 bond will sell for $98,000. Assuming there is no accrued interest on... | This is a cheet sheet Question |
Bonds Sold at a Premium | If bonds having a stated interest rate of 8% are issued on a day when the market interest rate is 7.9%, the bonds will sell for more than the par value or maturity value of the bonds. Perhaps the bonds will sell for 101 or 101% of face value. Therefore, a $100,000 bond will sell for $101,000. For personal use by the or... | This is a cheet sheet Question |
Straight-line Amortization of Discount or Premium | If the amount of the discount or the premium on bonds payable is not significant, the corporation may amortize the discount or premium using the straight-line method of amortization. This means that each accounting period during the life of the bonds the same amount of discount or premium will move from the balance she... | This is a cheet sheet Question |
Effective Interest Rate Method of Amortizing Discount or Premium | If the amount of the discount or the premium is significant, the initial amount of the discount or premium should be reduced by using the effective interest rate method of amortization. Under this method the market interest rate on the date that the bonds were issued is multiplied times the book value (carrying value) ... | This is a cheet sheet Question |
Accrued Interest on Bonds Payable | Since most bonds pay interest semiannually, the issuer of the bonds will have accrued interest expense and accrued interest payable if the bonds are outstanding on any of the other 363 days of the year. To illustrate, assume that on June 1 a corporation issued $3,000,000 of bonds with a stated interest rate of 6% (and ... | This is a cheet sheet Question |
Bank Reconciliation | The bank reconciliation is also known as the bank statement reconciliation or the bank rec. In accounting, a corporation’s checking account is considered to be part of its cash (which is reported on the corporation’s balance sheet). We will assume that the corporation has a separate general ledger cash account for each... | This is a cheet sheet Question |
Adjustments to the Balance per Bank | A tip for listing the adjustments for the bank reconciliation is: “Put it where it isn’t.” For instance, a check that had been written and recorded in the company’s books, but has not yet cleared the bank account, will be an adjustment to the balance per bank. (The balance per bank is the ending balance on the bank sta... | This is a cheet sheet Question |
Adjustments to the Balance per Books | Again, the tip for listing the adjustments is: “Put it where it isn’t.” For example, the bank service charge is on the bank statement, but it is not yet on the books. Therefore the bank service charge is an adjustment to the balance per books. For personal use by the original purchaser only. Copyright © AccountingCoach... | This is a cheet sheet Question |
Journal Entries for Adjustments to Books | Without journal entries to record the adjustments to the balance per books, Cash and at least one other account will have incorrect balances. (The reason is the double-entry system of accounting and bookkeeping.) | This is a cheet sheet Question |
Internal Control | For internal control purposes (to safeguard a company’s assets), it is best if the company’s bank statement reconciliation is prepared by someone that does NOT write checks, record receipts, or enter amounts in the company’s general ledger cash account. For instance, at a small business it would be best if the owner re... | This is a cheet sheet Question |
Balance per Bank | The balance per bank is the ending balance appearing on the bank statement (and/or in the bank account) before the bank reconciliation adjustments for outstanding checks and deposits in transit. For personal use by the original purchaser only. Copyright © AccountingCoach®.com. | This is a cheet sheet Question |
Balance per Books | The balance per books is the ending balance appearing in the company’s appropriate general ledger account before the bank reconciliation adjustments for bank fees, deposited checks that were returned, electronic transfers, errors, etc. | This is a cheet sheet Question |
Adjusted Balance per Bank | The adjusted balance per bank is the true or corrected balance after the bank statement balance has been adjusted for items such as outstanding checks and deposits in transit. When the adjusted balance per bank is equal to the adjusted balance per books, the bank statement is said to be “reconciled”. This adjusted, tru... | This is a cheet sheet Question |
Adjusted Balance per Books | The adjusted balance per books is the true or corrected balance after the general ledger accounts have been adjusted for items such as bank fees, deposited checks that were returned, etc. When the adjusted balance per books is equal to the adjusted balance per bank, the bank statement has been reconciled. This adjusted... | This is a cheet sheet Question |
Outstanding Checks | Outstanding checks are the checks that a company has written but which have not yet cleared the company’s bank account. | This is a cheet sheet Question |
Deposits in Transit | Deposits in transit are a company’s receipts (such as checks and currency from customers) that are recorded in a company’s general ledger account, but are not yet recorded in the company’s bank account. For personal use by the original purchaser only. Copyright © AccountingCoach®.com. | This is a cheet sheet Question |
Bank Service Charge | The bank service charge is often a monthly fee charged by a company’s bank for maintaining the company’s bank account. This will be an adjustment to the balance per books that credits the company’s general ledger account Cash and debits an account such as Bank Fee Expenses. | This is a cheet sheet Question |
NSF Check | An NSF check is a check that was not paid by the bank on which it was drawn because the checking account on which it was drawn did not have a sufficient balance. (NSF is the acronym for not sufficient funds.) An NSF check is also referred to as a “rubber check” since the check is said to have “bounced.” An NSF check th... | This is a cheet sheet Question |
Bank Fee for NSF Check | A company’s bank charges a fee for having to process a deposited check that had been returned due to insufficient funds. Since the bank charges the company’s checking account, the company must reduce the balance in its general ledger. This will be an adjustment to the balance per books that will credit the company’s ge... | This is a cheet sheet Question |
Bank Credit Memo | A bank credit memo is used by a bank to indicate that an amount is being added to a company’s bank account. As a result, the company will have an adjustment to the balance per books that will debit the company’s general ledger account Cash (and credit another account). For personal use by the original purchaser only. C... | This is a cheet sheet Question |
Bank Debit Memo | A bank debit memo is used by a bank to indicate that an amount is being deducted from a company’s bank account. As a result, the company will have an adjustment to the balance per books that will credit the company’s general ledger account Cash (and debit another account). | This is a cheet sheet Question |
Journal Entries | Journal entries are required to record in the company’s general ledger accounts the bank reconciliation items shown as adjustments to the balance per books. For personal use by the original purchaser only. Copyright © AccountingCoach®.com. | This is a cheet sheet Question |
Balance Sheet | The balance sheet is also known as the statement of financial position and it is one of the five external financial statements issued by U.S. corporations. The balance sheet reflects the balances in all of the corporation’s asset, liability and stockholders’ equity accounts as of the final moment of the date shown in t... | This is a cheet sheet Question |
Assets | Assets are the resources that a corporation owns as a result of a purchase transaction. Examples of a corporation’s assets include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, vehicles, etc. | This is a cheet sheet Question |
Liabilities | Liabilities are the obligations that a corporation owes as of the final moment of the date shown in the heading of the balance sheet. Examples of liabilities include accounts payable, loans payable, accrued expenses payable, customer deposits, deferred revenues, bonds payable, etc. Liabilities are claims against a corp... | This is a cheet sheet Question |
Stockholders’ Equity | Stockholders’ equity is equal to the amount of a corporation’s assets minus the amount of its liabilities. The stockholders’ equity section of the balance sheet is divided into several parts: • Paid-in (or contributed) capital • Retained earnings • Accumulated other comprehensive income • Treasury stock Stockholder... | This is a cheet sheet Question |
Generally Accepted Accounting Principles | A balance sheet distributed by a U.S. corporation must comply with generally accepted accounting principles, which are commonly known as GAAP or US GAAP. US GAAP is very comprehensive and includes a wide range of concepts, rules, practices, etc. Currently the authoritative group for establishing the U.S. accounting sta... | This is a cheet sheet Question |
Classified Balance Sheet | A classified balance sheet is a balance sheet having various groupings or classifications. For example, the assets will be presented under one of the following classifications: • Current assets • Investments • Property, plant and equipment • Other assets Liabilities will be classified as follows: • Current liabili... | This is a cheet sheet Question |
Current Liabilities | Current liabilities are obligations that have occurred as of the date in the heading of the balance sheet and must be paid within one year of the balance sheet date (unless the operating cycle is longer than one year). Examples of current liabilities include accounts payable, short-term loans, current portion of a long... | This is a cheet sheet Question |
Working Capital | Working capital is the amount of current assets minus the amount of current liabilities. If a corporation has $150,000 of current assets and $120,000 of current liabilities, its working capital is $30,000. | This is a cheet sheet Question |
Current Ratio | The current ratio is calculated as current assets divided by current liabilities. If a corporation has $150,000 of current assets and $120,000 of current liabilities, its current ratio is $150,000/$120,000 or 1.25 to 1. | This is a cheet sheet Question |
Property, Plant and Equipment | This section of the classified balance sheet reports the long-term assets used in a business. These assets are sometimes referred to as fixed assets and/or plant assets. Some of the assets in this classification are: • Land • Land Improvements • Buildings • Machinery and Equipment • Vehicles • Furniture and Fixtu... | This is a cheet sheet Question |
Notes to the Balance Sheet | In addition to the amounts appearing on the face of the balance sheet, there will also to be a reference such as “See notes to the financial statements.” or “The accompanying notes are an integral part of the financial statements.” The notes to the financial statements are especially important because a corporation may... | This is a cheet sheet Question |
Why Adjusting Entries are Necessary | Adjusting entries are required at the end of each accounting period so that a company’s financial statements reflect the accrual method of accounting. Without adjusting entries, a corporation’s financial statements will likely report incorrect amounts of revenues, expenses, gains, losses, assets, liabilities, and stock... | This is a cheet sheet Question |
Common Characteristic of Adjusting Entries | Every adjusting entry will involve: • At least one balance sheet account, and • At least one income statement account Therefore, if a required adjusting entry is omitted, both the company’s balance sheet and its income statement will not report the correct amounts. Adjusting entries are usually dated as of the final ... | This is a cheet sheet Question |
Types of Adjusting Entries | Adjusting entries are often categorized as follows: • Accruals • Deferrals • Others For personal use by the original purchaser only. Copyright © AccountingCoach®.com. Accruals (or accrual-type adjusting entries) refer to the adjusting entries that must be recorded prior to issuing the financial statements because a ... | This is a cheet sheet Question |
Typical Accruals | The following table shows the balance sheet account and the related income statement account for some typical accruals. (Recall that accruals are necessary so that all of a company’s assets, liabilities, revenues, expenses, and losses are included in the appropriate financial statements.) For personal use by the origin... | This is a cheet sheet Question |
Typical Deferrals | The following table shows the accounts involved in some typical deferrals. (Recall that the adjusting entries for deferrals are necessary because some of the amounts in the general ledger accounts belong on the income statement of a future accounting period. Those amounts must be reported on the balance sheet dated for... | This is a cheet sheet Question |
Other Adjusting Entries | The following table shows the balance sheet account and the related income statement account for two of the adjusting entries described as other. Balance Sheet Account Income Statement Acct Accumulated Depreciation Contra Asset Depreciation Expense Allowance for Doubtful Accts Contra Asset Bad Debts Expense Account Tit... | This is a cheet sheet Question |
Reversing Entries | Reversing entries are typically used in conjunction with the accruals. The reason is that shortly after the current period’s financial statements are distributed, the company will receive the paperwork for the transactions that had been accrued. For example, if a company had accrued a repair expense that occurred at th... | This is a cheet sheet Question |
Accounts Receivable | Accounts receivable refers to a company’s unsecured claim for money it is owed by a customer or client for goods and/or services the company had provided on credit (on account). The company that is selling the goods is usually transferring title to its goods at either: • the time the goods are shipped (the terms are F... | This is a cheet sheet Question |
Credit Terms | The seller’s credit terms will be indicated on the sales invoice. For example, the seller may have terms of “Net 30 days” or “Due upon receipt.” The term Net means net sales which is the amount of the sales invoice minus any authorized returns and/or allowances. Early Payment Discounts Some sellers offer an early payme... | This is a cheet sheet Question |
Bad Debts Expense | When sales or services are provided on credit, there is a risk that the seller or provider will not receive the amount owed by a customer. The amount that is not collected is reported on the seller’s income statement as bad debts expense. Bad debts expense is part of the selling, general and administrative (SG&A) expen... | This is a cheet sheet Question |
Direct Write-Off Method | Under the direct write-off method, the bad debts expense is not recorded and reported on the income statement until a specific account has been identified as uncollectible and the account is removed from the company’s accounts receivable. At that time, the company debits Bad Debts Expense and credits Accounts Receivabl... | This is a cheet sheet Question |
Allowance Method | The allowance method requires a company to anticipate that some amount of the accounts receivable will not be collected. In other words, prior to writing off an account receivable, the company will debit Bad Debts Expense and will credit a contra-asset account Allowance for Doubtful Accounts for an estimated amount. Th... | This is a cheet sheet Question |
Percentage of Accounts Receivable | The percentage of accounts receivable is also known as the balance sheet approach, since its focus is on reporting a realistic ending balance in the balance sheet account Allowance for Doubtful Accounts. In other words, the balance in the income statement account Bad Debts Expense is secondary and will depend on the ad... | This is a cheet sheet Question |
Allowance Method | When the allowance method (either the percentage of receivables or the percentage of credit sales) is used and a specific account is identified as uncollectible, it is written off with a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. [Note that under the allowance method, the write-off of... | This is a cheet sheet Question |
FOB Destination and FOB Shipping Point | The invoice term FOB destination indicates that the buyer will receive title to the goods when the goods arrive at the buyer’s location. At that point the seller will have a sale and an unsecured account receivable and the buyer will have a purchase of goods and an account payable. Since the seller owns the goods while... | This is a cheet sheet Question |
Accounts Payable | Accounts payable are sometimes referred to as trade payables. Accounts payable involve the amounts that a company owes to vendors and others who have supplied goods or services on credit. Accounts payable can also refer to the department within a company that is responsible for reviewing and paying bills. The review is... | This is a cheet sheet Question |
Vendor Invoice | The sales invoice issued by the supplier of goods or services will be referred to as a vendor invoice by the company receiving the goods or services. The vendor invoice will include the relevant details (date of service or shipment of goods, amounts, payment terms, etc.) concerning the goods and/or services provided. F... | This is a cheet sheet Question |
Purchase Order | A purchase order could be a multi-copy paper document or an electronic document. It is prepared by the company that ordered the goods/services. One copy is sent to the vendor, one is forwarded to the company’s accounts payable person or department, one copy will be kept by the person ordering, etc. The purchase order w... | This is a cheet sheet Question |
Receiving Document | A receiving document could be a paper document or an electronic record that is prepared by the person receiving the goods. It contains a description and the quantity of goods received. One copy is sent to the accounts payable person or department so that it can be compared with the goods listed on the vendor’s invoice ... | This is a cheet sheet Question |
Three-Way Match | The three-way match is a technique used to verify that a vendor’s invoice is acceptable for payment. The three-way match involves comparing the information shown on three documents: 1) the vendor’s invoice, 2) the company’s purchase order, and 3) the company’s receiving document. After the descriptions, quantities, pr... | This is a cheet sheet Question |
Accrual Adjusting Entry | An accrual adjusting entry is prepared at the end of each accounting period for vendor invoices and/ or other documents that have been received and which represent legitimate obligations, but have not yet been fully processed and therefore not yet recorded in Accounts Payable. These items will likely be reported as the... | This is a cheet sheet Question |
Early Payment Discount | An early payment discount is also known as a purchase discount or cash discount. This is sometimes offered by a vendor that has credit terms but wants to encourage faster remittance. For example, a vendor might offer terms of “1/10, n/30” which means that the buyer can deduct 1% of the net amount owed if the amount is ... | This is a cheet sheet Question |
Trade Discount | A trade discount is a discount expressed as a percentage of a list price. The percentage may vary according to the volume of a customer’s annual purchases. The trade discount allows a seller to have a single catalog with a single price for each item. The seller may then allow a high-volume customer to take a 40% trade ... | This is a cheet sheet Question |
FOB Destination and FOB Shipping Point | The invoice term FOB destination indicates that the buyer will receive title to the goods when the goods arrive at the buyer’s location. At that point the buyer will have an account payable (and the seller will have an account receivable). Since the seller owns the goods while they are in transit, the seller is respons... | This is a cheet sheet Question |
EOM | EOM is the acronym for end of the month. | This is a cheet sheet Question |
Voucher | In accounts payable, a voucher refers to a document that is used as a “cover sheet” for collecting, attaching and retaining the supporting documents and approvals before a vendor’s invoice can be scheduled for payment. | This is a cheet sheet Question |
End-of-Month Cut-Off | The end-of-month cut-off (or end-of-year cut-off) is an established routine to ensure that all expenses, liabilities, revenues, assets, etc. are reported on the financial statements. For example, under the accrual method of accounting, a series of accrual adjusting entries will be established so that expenses and liabi... | This is a cheet sheet Question |
Duplicate Payment | The term duplicate payment refers to paying a vendor’s invoice twice. This double-payment could occur if a company pays a vendor’s invoice and also makes a payment from a vendor’s statement of open invoices. It could also occur if a vendor sends a customer a second invoice for the same goods. There are two things that ... | This is a cheet sheet Question |
Vendor Statements | Vendor statements are often received from suppliers when a customer has not fully paid the amounts previously billed by the supplier or vendor. A general rule is: Never pay a vendor from a vendor’s statement. A company should pay only from a vendor’s invoice. For personal use by the original purchaser only. Copyright ©... | This is a cheet sheet Question |
Form 1099-NEC | Form 1099-NEC is an Internal Revenue Service form that must be sent to a person who provided services of $600 or more in a calendar year. A copy is also sent to the IRS. (If the services are provided by a corporation, this form is not required.) | This is a cheet sheet Question |
Form W-9 | Form W-9 is an Internal Revenue Service form that is used to request a taxpayer identification number from an independent contractor (that is not a corporation). The taxpayer identification number is needed when the company prepares Form 1099-NEC to an individual who provided services to the company for $600 or more in... | This is a cheet sheet Question |
Accounting Principles | The financial statements distributed to people outside of a U.S. corporation must be in compliance with generally accepted accounting principles (GAAP or US GAAP). US GAAP includes basic accounting concepts and underlying principles to very complex and detailed accounting standards found in the Financial Accounting St... | This is a cheet sheet Question |
Cost Principle | The cost principle (or historical cost principle) requires that transactions be recorded at their cost. Cost is defined as the cash amount or the cash equivalent amount at the time of the transaction. Except for certain marketable investment securities and impairments, the recorded amounts are not increased for inflati... | This is a cheet sheet Question |
Accrual Method of Accounting | The accrual method of accounting (or accrual basis of accounting) is to be used instead of the cash method of accounting due to various accounting principles (matching, revenue recognition). The accrual method results in a better picture of a corporation’s net income during a specified period of time and it results in ... | This is a cheet sheet Question |
Matching Principle | The matching principle, which is associated with the accrual method of accounting, requires a company to match expenses with revenues. For example, a retailer’s income statement should match the cost of the goods that were sold with the sales of the goods. It also requires the matching of sales commission expense with ... | This is a cheet sheet Question |
Full Disclosure Principle | The full disclosure principle requires a company to report information that will make a difference to an investor, lender, or other decision maker. As a result of the full disclosure principle, a company’s financial statements must include notes to the financial statements. | This is a cheet sheet Question |
Economic Entity Assumption | The economic entity assumption allows accountants to prepare financial statements for a sole proprietorship’s business transactions (even though legally there may not be any separation between the owner and the business). The economic entity assumption also results in accountants preparing consolidated financial statem... | This is a cheet sheet Question |
Periodicity (or Time Period) Assumption | The periodicity (or time period) assumption allows accountants to report financial information for distinct time periods even though a business is an ongoing operation. In other words, the periodicity assumption allows the accountant to report 1) revenue and expense amounts for a distinct time period such as a month, q... | This is a cheet sheet Question |
Monetary Unit Assumption | The monetary unit assumption allows accountants in the U.S. to express the results of past business transactions in U.S. dollars. The monetary unit assumption also means that the previously recorded amounts will not be adjusted for inflation since it also assumes that the U.S. dollar does not lose purchasing power over... | This is a cheet sheet Question |
Going Concern Assumption | The going concern assumption means that the accountant believes that the business will be able to continue on (rather than having to be liquidated). This justifies deferring prepaid expenses to the balance sheet and reporting them as an expense in a later accounting period. | This is a cheet sheet Question |
Materiality | The concept of materiality allows a minor violation of an accounting principle if the amount is insignificant. The amount must be very minor in relation to a corporation’s assets and its net income. Example 4. Companies often expense immediately the purchase of assets that have a cost of $500 or less. The justification... | This is a cheet sheet Question |
Industry Practices | Industries that are regulated by government agencies often have unique financial reporting requirements. As a result, the external financial statements issued by the company may be in the format required by the government. This concept is sometimes referred to as industry practices or industry peculiarities. For person... | This is a cheet sheet Question |
Conservatism | The concept of conservatism provides guidance to an accountant who is faced with two acceptable alternative ways for reporting an amount. Conservatism tells the accountant to “break the tie” by using the alternative that will result in less net income and less assets or greater liabilities. The concept does NOT instruc... | This is a cheet sheet Question |
Reliability | Another qualitative characteristic of accounting is reliability. This means that accountants should be reporting amounts that are dependable and free from bias. For personal use by the original purchaser only. Copyright © AccountingCoach®.com. | This is a cheet sheet Question |
Basic Accounting Equation | In accounting (and bookkeeping) the basic accounting equation is: Assets = Liabilities + Owner’s Equity (sole proprietorship) Assets = Liabilities + Stockholders’ Equity (corporation) Assets = Liabilities + Net Assets (not-for-profit organization) Thanks to double-entry accounting (or double-entry bookkee... | This is a cheet sheet Question |
Effect of Owner Investing in a Business | For example, if a person starts a sole proprietorship with $15,000 the accounting equation will show: Assets = Liabilities + Owner’s Equity $15,000 = $15,000 | This is a cheet sheet Question |
Effect of Business Borrowing Money | Next, let’s assume that the company borrows $10,000 from its bank. This will cause the asset Cash to increase by $10,000 and it will cause the liability Notes Payable or Loans Payable to increase by $10,000. The accounting equation remains in balance because both sides of the equation increased by $10,000 For personal ... | This is a cheet sheet Question |
Purchase of Office Furniture for Cash | If the company pays Cash of $3,000 for new office furniture, the transaction will cause the asset Office Furniture to increase by $3,000 and the asset Cash to decrease by $3,000. Note that the total amount of assets (shown on the left side of the equation) does not change since there was both an increase and a decrease... | This is a cheet sheet Question |
Purchase of New Machine with Cash and a Loan | The company buys a new machine for $20,000 by paying $12,000 in cash and signing a promissory note for the remaining $8,000. This transaction causes the asset Machinery to increase by $20,000 and causes the asset Cash to decrease by $12,000 and the liabilities to increase by $8,000: | This is a cheet sheet Question |
Owner Invests Additional Money in Business | Owner’s equity (on the right side of the accounting equation) is affected by several types of transactions. First, owner’s equity increases when the business owner invests personal cash or other assets into the business. For example, if M. Jones invests $20,000 of cash in her business, the company’s asset Cash increase... | This is a cheet sheet Question |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.