RETL 261: Study Guide
58 Cards in this Set
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Asset
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anything owned or controlled that is beneficial or produces value
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Liability
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obligation of entity arising from past transactions or events; IOU someone else's claim on your asset
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Equity
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owners claim on the assets of a business; my piece of the pie
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Accounting
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identify, records, and communicates information as long as it is relevant, up to date, and comprable
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External Users
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lenders, shareholders, consumer groups, external auditors, governments, and customers
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Internal Users
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managers, sales staff, officers, budget officers, internal auditors, and controllers
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External Users
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financial accounting provides them with financial statements (shareholders, lenders, etc)
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Internal Users
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managerial accounting provides information needs for these decision makers (officers, managers, etc)
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Ethics
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beliefs that distinguish right from wrong; accepted standards of good and bad behavior
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GAAP
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Generally Accepted Accounting Principles
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GAAP
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financial accounting practices is governed by concepts and rules known
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Securities and Exchange Commission
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who in the US has the legal authority to establish reporting requirements and set GAAP for companies that issue stock to the public
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Financial Accounting Standards Board (FASB)
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private group that sets both board and specific principles
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International Accounting Standards Board (IASB)
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issues international standards that identify preferred accounting practices in other countries
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Accounting Principles
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measurement principle, revenue recognition principle, matching principle, principle of full disclosure
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Accounting Assumptions
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going-concern assumption, monetary unit assumption, time period assumption, business entity
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Measurement Principle
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aka cost principle; tells us that accounting information is based upon actual costs incurred; historical cost
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Revenue Recognition Principle
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provides guidance on when a company must recognize revenue; revenue = sales price not profit; revenue is recognized when it is earned not received
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Matching Principle
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aka expense recognition; prescribes that a company must record its expenses incurred to generate the revenues; matching earned revenue with expenses
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Principle of Full Disclosure
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requires a company to report the details behind financial statements that would impact users decisions; ex: telling customers things that make a difference i.e recalls
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The Going-Concern Assumption
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in the absence of information to the contrary, the business entity is assumed to continue operations into the foreseeable future; assuming things are "open"
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Monetary Unit Assumption
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we can express transactions in monetary terms; money does not necessarily have to change hands but actions can be given value and barter
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Time Period Assumption
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presumes that the life of a company can be divided into time periods such as months and years; monthly or quarterly or annually
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Business Entity
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a business is accounted for separately from its owner or other business entity; filing taxes for individual and for business separately is assumed but not always; business entities can take on different forms
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Accounting Assumptions
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help set rules for accounting or allow the rules to work
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Sole Proprietorship
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one person owns the entire business; unlimited liability; no additional tax in the form of a business income tax
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Partnership
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2 or more owners; can be unlimited liability but most set up as limited liability partnership
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Corporation
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"own being"; no partners and not one owner; stockholders, limited liability; separates business tax b/c owner income is taxed as well as dividends; double taxation
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Sarbanes-Oxley Act (SOX)
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2002 act to help curb financial abuse and it raised accountability in business transactions and also help raise the bar in business ethics
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Accounting Equation
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A=L+E
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Cash
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number one asset
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Accounts Receivable
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a UOMe; expecting to receive revenue; asset because it gives you control; short term
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Notes Receivable
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long term; making a contract so it's "official"; legally bound probably accrues interest
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Assets
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vehicles, supplies, cash, accounts receivable, equipment, buildings, land, notes receivable
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Liabilities
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accounts payable, taxes payable, notes payable, wages payable
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Equities
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contributed capital, retained earnings, dividends
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Expenses and Dividends
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what decreases equity
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Capital and Revenue
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what increases equity
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Dividend
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withdrawal
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What is Equity
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capital-dividends+revenues-expenses
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Transaction Analysis
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defined as the process used to analyze transactions and events
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Statement of Owners Equity
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capital - dividends + investments + net income= new capital balance
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Net Income Statement
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revenues - expenses = net income
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Balance Sheet
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A=L+E
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Expenses
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the cost of doing business
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#1 Priority
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managing cash flow
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Journal
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a chronologically arranged record of transactions
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Ledger
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where transactions in the journal are systematically posted to; groups transactions by the accounts impacted
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Trial Balance
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makes sure that all information has been transferred properly; listing of all account balances
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Account
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record of increases and decreases in a specific asset, liability, equity, revenue, or expense item
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General Ledger
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record containing all accounts used by the company; diary
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Prepaid Amount
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expires with the passage of time; turn into an expense once used; asset
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Unearned Revenue
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liability; are not revenue because it has not been earned
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Accrued Liabilities
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things that are owed but not yet paid
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Chart of Accounts
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table of contents
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Double Entry Accounting
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analyze --> record it to journal --> post it to ledger --> trial balance
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Credit
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increase in revenues
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Debit
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increase in expenses
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RETL 261: Exam 2