Accounting Class Flashcards

Questions and Answers

What is Accrual Basis Accounting?

Recording transactions at the end of the period

Recording only cash transactions

Recording transactions based on when they occur (correct)

Recording transactions based on when cash is received

Revenue recognition refers to recording revenue when it is earned?

True (correct)

False

What is the goal of the matching principle?

To record expenses in the same period as the revenue they helped generate.

When are adjusting entries recorded?

On the last day of the period. Signup and view all the answers

What are deferrals in accounting?

Adjustments needed to update prepaid expenses and unearned revenues. Signup and view all the answers

What are accruals?

Revenues earned or expenses incurred that have not yet been recorded. Signup and view all the answers

What is an account in accounting?

An accounting form used to record the dollar amount of increases and decreases. Signup and view all the answers

What is included in the chart of accounts?

A list of all accounts of a firm usually in the order: Assets, liabilities, equity, revenue, expense. Signup and view all the answers

What does the General Journal provide?

A chronological record of each transaction for a firm. Signup and view all the answers

What is a general ledger?

The collection of all accounts for a firm. Signup and view all the answers

What does debit refer to in accounting?

The left side of a T account. Signup and view all the answers

What does credit refer to in accounting?

The right side of a T account. Signup and view all the answers

What is a trial balance?

A list of all accounts of a firm with their balances. Signup and view all the answers

How is Net Income calculated?

Revenues minus expenses. Signup and view all the answers

What does the Statement of Retained Earnings show?

The change in retained earnings between the beginning and end of a period. Signup and view all the answers

What are liabilities?

Accounts payable, notes payable, taxes payable, unearned revenue, interest payable, accrued expenses. Signup and view all the answers

What are assets?

Cash, accounts receivable, inventory, supplies, prepaid expenses, land, buildings, cars. Signup and view all the answers

What are the basic forms of business organization?

All of the above Signup and view all the answers

What is accounting?

The process of analyzing, organizing, and recording financial information. Signup and view all the answers

What does the Securities and Exchange Commission (SEC) do?

Protects investors by ensuring high-quality financial information access. Signup and view all the answers

What is profitability?

The ability to generate income. Signup and view all the answers

What is solvency?

The ability to pay debts as they become due. Signup and view all the answers

What does the Balance Sheet reflect?

All of the above Signup and view all the answers

What is reported in the Statement of Cash Flows?

Cash inflows and outflows over a period of time. Signup and view all the answers

What is stockholders' equity?

The owner's interest in a corporation. Signup and view all the answers

What is a source document in accounting?

Supports evidence of the transaction. Signup and view all the answers

Study Notes

Accounting Principles

Accrual Basis Accounting: Records transactions when they occur, not when cash changes hands.
Revenue Recognition: Revenue is recorded when earned, irrespective of cash receipt timing.
Matching Principle: Expenses recorded in the same period as the revenue they helped generate.

Adjustments and Entries

Adjusting Entries: Made on the last day of accounting period, impact one income statement account, do not affect cash.
Deferrals: Adjustments for prepaid expenses and unearned revenues, recognizing expense portions.
Accruals: Recognizes revenues earned or expenses incurred but not recorded; necessary for current financial statements.

Accounting Tools

Account: Used to track increases and decreases in financial statement elements; often visualized as a 'T account'.
Chart of Accounts: Organized list of all accounts categorized by assets, liabilities, equity, revenue, and expense.
General Journal: Chronological record of all transactions for a firm.
General Ledger: Compilation of all accounts and their balances for a firm.
Trial Balance: Summary of account balances used to verify the equality of debits and credits.

Financial Statements

Income Statement: Illustrates profitability; calculated as revenues minus expenses.
Statement of Retained Earnings: Shows changes in retained earnings, linking income statement and balance sheet.
Balance Sheet: Reflects company's financial position, listing assets, liabilities, and equity at a specific time.
Statement of Cash Flows: Reports cash inflows and outflows over a period.

Types of Accounts

Liabilities: Include accounts payable, notes payable, and accrued expenses; represent obligations to pay.
Assets: Comprise cash, accounts receivable, inventory, and various physical assets like land and buildings.
Stock and Equity: Common stock, capital stock, and retained earnings constitute ownership interest in a corporation.

Business Structures

Forms of Business Organization:
- Sole Proprietorship: Single owner structure.
- Partnership: Two or more individuals sharing skills and resources.
- Corporation: Independent legal entity owned by stockholders.

Business Activities

Service Business: Provides intangible products/services (e.g., dry cleaners).
Merchandising Business: Sells goods (e.g., Target, Amazon).
Manufacturing Business: Produces goods to sell (e.g., Goodyear Tire).

Definitions and Concepts

Accounting: The systematic process of analyzing, organizing, recording, and communicating financial data.
Securities and Exchange Commission (SEC): Regulatory agency ensuring investors access to quality financial information.
Profitability: Ability of a business to generate profit.
Solvency: Capability to meet debts as they come due.
Source Document: Written proof or evidence supporting transactions (e.g., receipts).

Key Concepts

Stockholders' Equity: Represents owner’s interest in a corporation.
Business Entity Concept: Ensures that the business's financial transactions are separate from those of its owners.

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Description

Test your knowledge of key accounting concepts with these flashcards. From accrual basis accounting to the matching principle, this quiz covers essential terminology and definitions that are crucial for understanding financial practices. Ideal for students looking to reinforce their learning.