Basics
What is the definition of accounting
The action or process of keeping financial accounts.
What is the net profit formula?
total revenues - total expenses = net profit
What is shown on an income statement?
Revenues and expenses
When is cash recognized?
When it is spent or received.
When is cash recognized in accrual-based accounting?
Recognizes cash when money is earned but not received.
What is an example of an asset?
Cash, equipment, or land
What is the balance sheet formula?
Assets = Liabilities + Stockholder's Equity
What is shown on a balance sheet?
Assets and liabilities
When is cash-basis accounting best?
If you have a lot of transactions (typically smaller businesses)
What type of company is accrual-basis accounting best for?
Large companies.
What is an example of a liability?
Notes payable or accounts payable
What is the income statement formula?
Gross Profit = Revenues – Cost of Goods Sold
What is the definition of an income statement?
One of a company’s core financial statements that shows their profit and loss.
What is one benefit of cash-basis accounting?
You easily know how much money is available to spend
What is one benefit of accrual-basis accounting?
More accurate reporting
What is a similarity between finance and accounting?
They both have financial statements.
What is the cost of goods sold formula?
COGS = Starting Inventory + Purchases - Ending Inventory
What is the definition of a balance sheet?
A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
What is one disadvantage of cash-basis accounting?
You don’t know your accounts receivable
What is one disadvantage of accrual-basis accounting?
The company's bank account doesn't match the books.
What is the definition of stockholders' equity?
The total amount of capital given to a company by its shareholders in exchange for stock,
What is the gross profit formula?
Sales revenue - cost of goods sold = gross profit
Name one account you will find under the asset section of a basic balance sheet.
Cash, accounts receivable, notes receivable, inventory, supplies, prepaid insurance, etc...
What type of ownership typically use cash-basis accounting?
Sole proprietorships
Companies with sales of over _____ must use the accrual method.
Companies with sales of over $25 Million must use the accrual method.