Purpose of Accounting
Owners, managers, investors, lenders, and regulators all rely on accounting for this reason.
What is making informed decisions about a business?
Unlike financial accounting, this type is not bound by GAAP.
What is managerial accounting?
Cash, inventory, and equipment are all examples of this category.
What are assets?
Assets and expenses normally carry this type of balance.
What is a debit balance?
The financial statement that shows revenues, expenses, and net income over a period of time.
What is the income statement?
This is the main purpose of accounting: recording, summarizing, analyzing, and reporting financial information.
What is providing financial information for decision-making?
This type of accounting is used internally and helps with planning, budgeting, and decision-making.
What is managerial accounting?
This accounting equation must always remain balanced.
What is Assets = Liabilities + Owner’s Equity?
In the double-entry system, the total of these must always equal the total of credits.
What are debits?
This multi-step process begins with analyzing transactions and ends with closing temporary accounts.
What is the accounting cycle?
The type of accounting focused on preparing financial statements for external users.
What is financial accounting?
The GAAP principle that says revenue is recorded when it is earned, not when cash is received.
What is the revenue recognition principle?
Accounts payable, loans payable, and wages payable fall under this classification.
What are liabilities?
Liabilities, equity, and revenue normally carry this type of balance.
What is a credit balance?
This financial statement shows a company’s financial position at a specific point in time.
What is the balance sheet?
This group includes investors, banks, and the government.
Who are external users?
The GAAP principle that requires expenses to be recorded in the same period as the revenue they help generate.
What is the matching principle?
The owner’s claim on business assets is called this.
What is owner’s equity?
A chronological record of all business transactions is called this.
What is the journal?
Beginning capital plus net income minus withdrawals equals this figure.
What is ending capital (owner’s equity)?
What is GAAP
Generally Accepted Accounting Principles
This principle requires assets to be recorded at their original purchase price.
What is the cost principle?
This accounting system requires every transaction to affect at least two accounts.
What is the double-entry system?
Debiting Equipment and crediting Cash would record this type of transaction.
What is purchasing equipment with cash?
The accounting method required by GAAP that records revenue when earned and expenses when incurred.
What is accrual accounting?