Chapter 1 & 2
What is "The Accounting Equation?"
Assets = Liabilities + Owners' Equity
How are debits and credits recorded?
Debit - recorded on the left side
Credit - recorded on the right side
A balance sheet is ______, where an income statement is ______.
Permanent
Temporary
What is the equation for Interest?
Principal * Rate of Interest * Time
What is a bond?
Transferrable units that were split from a very large loan
What does GAAP stand for and what is it?
Generally Accepted Accounting Principles
principles that provide the framework for determining what information is to be included in financial statements
What is a ledger?
An accounting system that includes a separate record for each item that appears in the financial statements
What is Liquidity?
The ability to convert assets into cash
What is a Bank Reconciliation?
A schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositors accounting records
What are two causes of depreciation?
2. Obsolescence
What are the three types of organizations and what kind of liability do they have?
1. Sole Proprietorship - Unlimited
2. Partnership - Unlimited
3. Corporations - Limited
What is the format of an income statement?
Revenue - Expenses = Income before taxes (- Income taxes = Net Income
What is the equation for Working Capital?
Current assets - Current liabilites
What does LIFO and FIFO stand for?
Last in, First out
First in, First out
What are current liabilities?
Obligations that are expected to be paid within one year or within the operating cycle, whichever comes first
What are the 3 main financial statements?
1. Income Statement
2. Balance Sheet
3. Statement of Cash Flows
What are the 4 types of adjusting entries?
1. Converting assets to expenses
2. Converting liabilities to revenue
3. Accruing unpaid expenses
4. Accruing uncollected revenue
What are the stages of the Operating Cycle?
1. The purchase of merchandise
2. The sale of merchandise on account
3. The collection of receivables
Loss of inventory from theft, spoilage, or breakage
What depreciation method do most businesses use?
Straight - line method: financial statements
Accelerated methods: income tax returns
What does SEC stand for and what does it do?
Securities and Exchange Commission
a governmental agency with the legal power to establish accounting principals and financial reporting requirements for publicly owned corporations
What is depreciation? How do you calculate it using the straight - line method?
Cost of the asset / Estimated useful life
Using the periodic inventory, how would you find the cost of goods available for sale?
Beginning inventory + purchases
F.O.B. shipping point is when the title passes at the point of shipment and the goods are property of the buyer
F.O.B. destination is when the title does not pass until the shipment reaches its destination
Common stock has voting rights and participation in dividends, preferred stock has no voting rights, but they always get paid before the common stock holders