Vocabulary
What is financial accounting?
Accounting that focuses on reporting to external users. Issue financial statements
What is the accounting equation & which financial statement is it used in?
assets = liabilities + owner's equity. Balance sheet.
Give an example of a temporary account
Revenue, expenses, drawing, income summary
How is your balance sheet set up? What should the formatting look like?
Left side:
Assets & assets total
Right side:
liabilities & liabilities total
owner's equity
& total liabilities and owner's equity
What are the 4 sections on a balance sheet?
1. heading
2. assets
3. liabilities
4. owner's equity
What is managerial accounting?
Accounting that focuses on reporting information to internal users. (Management reports, etc.)
See if your assets = liabilities + owner's equity
What is your expense balance after closing entries have been made?
0
What is the formula for calculating the total expense ratio?
total expenses / total sales or revenue
List the 4 sections in an income statement?
1. heading
2. revenue
3. expenses
4. net income / loss
What is a permanent account?
An account used to accumulate information from one fiscal period to the next
What is the Net Income Ratio? What is another way to say it?
Net Income / Total Sales. Return on Sales
What is an income summary account used for?
It is used to close the temporary accounts, it has no normal balance. Can be thought of as a buffer account
What are the components used to calculate your capital that is shown on your balance sheet?
Capital at the beginning of the period
+ net income or - net loss
- drawing account
= capital balance at end of period
What do the ending balances of permanent accounts for one fiscal period represent at the beginning of the next fiscal year?
The balance of the account ( value of the asset )
What is ratio analysis?
Calculations and interpretations of a financial ratio
Vertical analysis is used when you are...
reporting an amount on a financial statement as a percentage of another item on the SAME financial statement
How do you calculate the amount to close for during your income summary closing entry?
You use the balance of the income summary account AFTER you have made your closing entries for revenue and expenses (This is also your net income / loss!!)
What are the 4 closing entries that must always be made
1. revenue
2. expenses
3. income summary
4. drawing
When you are preparing a closing entry for the owner's drawing, what accounts & how are being affected?
(D) capital
(C) drawing
What is a closing entry?
You spent (expenses) more than you made (revenue)
Which accounts do not appear on your post-closing trial balance?
Your temporary accounts that have a 0 balance
What are the 8 steps in the accounting cycle?
1. analyze transactions
2. journalize
3. post
4. prepare worksheets
5. journalize & post adjusting entries
6. prepare financial statements
7. journalize and post the closing entries
8. prepare post-closing trial balance
Which accounts go on the post-closing trial balance?
Permanent accounts