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RETL 261: Exam 1
Debit Ratio
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Total liabilities/ Total assets
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Current Ratio
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Current assets/ Current liabilities
- Higher # = better outcome
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Accounting Equation
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Assets = Liabilities + Equity (owners capital + revenue - expenses)
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Going-concern Assumption
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Business will continue operating
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Monetary Unit Assumption
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Express transactions & events
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Business Entity Assumption
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Multiple jobs viewed separately
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Time Period Assumption
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Time periods of a company (annual, monthly & yearly)
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Cost Principle
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Accounting information based on actual cost. Actual cost is considered objective.
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Revenue Recognition
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1. Recognize when its earned 2. Proceeds need to be in cash 3. Measure revenue cash received - plus cash value of items received
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Matching Principle
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A company records its expenses incurred to generate the revenue reported
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Full Disclosure Principle
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Company required to report the details behind financial statements that would impact user's decisions
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Statement of cash flow
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Identifies cash flows (receipts) and cash outflows (payments) over a period of time
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Income Statement
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Describes a company's revenue and expenses along with the resulting net income/loss over a period of time due to earnings activities
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General Ledger
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A record containing all accounts used by the company
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Ledger
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Collection of all accounts for an information system. A company's size and diversity of operations affect the number of accounts needed.
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T Account
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Represents a ledger account and is a tool used to understand the effects of one or more transactions
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Trial Balance
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List all accounts balances in the general ledger. If in balance, the total debits will equal the total credit.
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Account
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Record of increases and decreased in a specific asset, liability, equity, revenue, or expense item
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Deferrals
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Cash is exchanged before revenue is earned or expenses are incurred (non-GAAP)
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Accurial Basis
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Revenue is earned and expenses are incurred before cash is exchanged (most optimal, GAAP)
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Cash Basis
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Accounting dictates that revenues be recognized when the cash is actually received and that exp
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Sabanes-oxley
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Congress passed, to help curb financial abuses of companies that issue their stock to the public
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FASB/IASB
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Group of people who formulates GAAP
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Owner's Equity
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Capital + net income = x - withdrawals
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