Basic Accounting Principles Flashcards

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Questions and Answers

What is accounting?

The direct management of employee payroll

The classification of physical assets

The investment in stocks and bonds

The systematic recording, reporting, and analysis of financial transactions (correct)

What do GAAP stand for?

Generally Accepted Accounting Principles

What does FASB stand for?

Financial Accounting Standards Board

What are assets?

Items of value owned by the company Signup and view all the answers

What are current assets?

Any assets easily converted into cash within one calendar year Signup and view all the answers

What is cash?

Money available immediately Signup and view all the answers

What are accounts receivable?

Money owed to the business for purchases made by customers Signup and view all the answers

What are notes receivable?

Notes due within the year Signup and view all the answers

What are total fixed assets?

Total dollar value of all fixed assets in your business, less any accumulated depreciation Signup and view all the answers

What are liabilities?

Debts the company owes or obligations the company has Signup and view all the answers

What are accounts payable?

All short-term obligations owed by your business to creditors Signup and view all the answers

What are notes payable?

Money owed on a short-term collection cycle Signup and view all the answers

What are total current liabilities?

Sum of all current liabilities owed to creditors that must be paid within one year Signup and view all the answers

What is owner's equity?

Initial investment in the business and any retained earnings reinvested Signup and view all the answers

What is double entry accounting?

Recognizes that every financial transaction affects at least two accounts Signup and view all the answers

What is income?

Money coming into business Signup and view all the answers

What are expenses?

Money leaving business Signup and view all the answers

What are expense accounts?

Specific to the expenses they incur Signup and view all the answers

What are accounting systems?

Communicate information which specifies details about a company Signup and view all the answers

What is a general ledger?

Core of a company's accounting system Signup and view all the answers

What are subledgers?

Divisions of the general ledger Signup and view all the answers

What is a balance sheet?

Shows the numerical balances determined by the chart of accounts Signup and view all the answers

What is a profit and loss statement?

Shows changes which have occurred in the numerical balances of the company Signup and view all the answers

What are sales figures?

Total sales, less any product returns or sales discounts Signup and view all the answers

What is gross profit?

Derived by subtracting the cost of goods sold from net sales Signup and view all the answers

What are operating expenses?

Daily expenses incurred in the operation of your business Signup and view all the answers

What is depreciation?

Measures the loss in value in an asset Signup and view all the answers

What is net income?

The amount of money the business has earned after paying income taxes Signup and view all the answers

What is the business cycle?

Flow of transactions needed for business to complete a sale and collect the proceeds Signup and view all the answers

Study Notes

Key Accounting Concepts

Accounting involves systematic recording, reporting, and analysis of financial transactions to provide meaningful financial data.
Generally Accepted Accounting Principles (GAAP) are the standards guiding the preparation and presentation of financial statements.

Financial Accounting Standards

The Financial Accounting Standards Board (FASB) is responsible for establishing accounting principles.

Understanding Assets

Assets are valuable items owned by a company, including both current and fixed assets.
Current assets can easily be converted into cash within one calendar year, aiding in liquidity management.
Cash is the most liquid asset, available for immediate use.
Accounts Receivable represents money owed from customers or vendors for purchases made.
Notes Receivable are formal agreements due within a year, representing short-term lending.

Fixed Assets and Liabilities

Total Fixed Assets reflect the dollar value of all fixed assets, minus accumulated depreciation.
Liabilities refer to the debts or obligations a company owes to others.
Accounts Payable includes all short-term obligations to creditors, suppliers, and other vendors.
Notes Payable indicates money owed on short-term obligations, typically with a clear repayment schedule.

Current Liabilities and Equity

Total Current Liabilities is the sum of all obligations due within one year.
Owner's Equity consists of the initial investment and retained earnings that are reinvested in the business.

Double Entry Accounting System

Double Entry Accounting ensures that every financial transaction impacts at least two accounts, maintaining balance in financial records.

Revenue and Expenses

Income refers to money flowing into the business, while expenses indicate money flowing out.
Expense Accounts are categorized based on specific types of expenses incurred during operations.

Accounting Systems and Ledger

Accounting Systems are integral for communicating detailed financial information about a company.
The General Ledger serves as the core of the accounting system, capturing all financial transactions.
Subledgers are subdivisions of the general ledger, categorizing accounts for detailed tracking.

Financial Statements

The Balance Sheet displays the numerical balances derived from the chart of accounts, summarizing a company's financial position.
The Profit and Loss Statement outlines changes in financial balances over time, highlighting income and expenses.
Sales Figures indicate total sales adjusted for returns and discounts, reflecting actual revenue generation.
Gross Profit is calculated by subtracting the cost of goods sold from net sales, assessing profit from core operations.

Operating Expenses and Depreciation

Operating Expenses are daily costs associated with running the business, crucial for budgeting and financial planning.
Depreciation accounts for the decline in value of assets over time, impacting financial statements.

Financial Performance Metrics

Net Income is the profit remaining after all expenses and taxes have been deducted, critical for assessing financial health.
The Business Cycle encompasses the series of transactions necessary for completing sales and collecting proceeds, fundamental to business operations.

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Description

Explore essential concepts in accounting through these flashcards. Understand key terms such as accounting, GAAP, and the role of the FASB. Perfect for students learning the fundamentals of financial reporting.