Equations
Assets = Liabilities + Shareholder’s Equity
What is the accounting equation?
Revenue is recorded only when cash is received, and expenses are recorded when cash is paid.
What is the cash-basis of accounting?
Dr. Cash ………………… $1,000
Cr. Service Revenue ……………. $1,000
What is the entry to record receiving cash for services performed?
An economic resource that a business owns and can use to operate the business
What is Asset
The classification of receiving cash from customers.
What is Cash flow / operating activities
Cost of Goods Sold ÷ Average Inventory
What is Inventory Turnover?
An accounting basis that follows the revenue recognition and matching principles.
What is the accrual-basis of accounting?
Dr. Utilities Expense ………….. $940
Cr. Utilities Payable ………………… $940
What is the adjusting entry to record utilities expenses incurred but not yet paid?
The rule of accounting that specifies every transaction involves at least two accounts and is recorded with equal amounts of debits and credits.
What is Double-entry accounting
A financial statement is often described as a snapshot of a company's assets, liabilities, and equity at a specific point in time.
What is The balance sheet
Current Assets ÷ Current Liabilities
What is Current Ratio?
A company provides a service in December but receives payment in January, yet the revenue is recognized in December.
What is the accrual-basis of accounting
Dr. Unearned Revenue ……… $600
Cr. Service Revenue …………….… $600
What is the adjusting entry to record revenue earned that was previously unearned?
Allocation of the cost of a long-term asset to an expense over its useful life.
What is Depreciation
The two accounting bases that determine the timing of revenue and expense recognition.
What is Accrual accounting vs. Cash Basis
(Cost of Asset - Residual Value) ÷ Useful Life
What is the deprecation expense per year equation?
A method to record a six-month prepaid insurance expense when the payment is made, at the time of the cash outflow.
What is the cash basis?
Dr. Depreciation Expanse …………………..…… $1,920
Cr. Accumulated Depreciation - Equipment …………….. $1,920
What is the adjusting entry to record depreciation on equipment for the period?
A contra-asset account that holds the estimated amount of uncollectible accounts receivable; also called allowance for doubtful accounts.
What is Allowance for Uncollectible Accounts
This is the final calculated amount / part that appears on the equity section of the balance sheet.
What is a Statement of retained earnings
Net Earnings ÷ Sales Revenue
What is Net Earnings Percentage?
The accrual basis provides a more accurate measure of profitability because it matches revenues with the expenses incurred to generate them, regardless of cash timing.
What is the accrual-basis of accounting?
Dr. Accounts Receivable ..……..… $3,700
Cr. Sales Revenue ……………………….… $3,700
Dr. Cost of Goods Sold ………...… $1,850
Cr. Inventory ……………………………… $1,850
What is the entry to record a sale of inventory on account and the associated cost?
The combination of perceived pressure, rationalization, and perceived opportunity necessary to commit fraud.
What is Fraud Triangle
This is the most crucial profitability measure, representing income from core, principal business activities before financing and taxes.
What is an income statement?