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Basic Accounting

CMA103

TermDefinition
Accounting Described as the language of business. Process of recording, classifying summarizing, reporting, analyzing and interpreting economic data.
Users Owners Managers Creditors Government Agencies Accrediting Agencies
Analyzing Does and activity constitute a transaction?
Recording Documenting a transaction.
Classifying Organizing the data into useful categories.
Summarizing Providing an overall view of the financial picture.
Interpreting Deriving meaning from the data.
Accounting Elements Assets Liabilities Owners Equity
Assets Property rights of value. Money Land Building Fixtures Equipment Merchandise Accounts Receivable Securities Copyrights Supplies
Liabilities Contractual debt obligations: also called creditors interest. Accounts Payable Salaries Payable Notes Payable Bond Payable
Owner's Equity Amount by which assets exceed liabilities. Also called net worth, net assets, capital, ownership interest. Revenue Expense Drawing
Accounting Equation Assets = Liabilities + Owners Equity
LIABILITIES = ASSETS - OWNERS EQUITY
OWNERS EQUITY = ASSETS - LIABILITIES
Double Entry System Each transaction affects at least two accounts. Each transaction is recorded in a a manner that maintains a balance of the accounting elements.
Account A record used to keep track of changes in each element of the accounting equation.
Journal A book of original entry that serves as chronological record of daily business transactions.
Ledger A collection of individual records of each account.
Debit Left side on an account. Increase Assets. Decreases Owners Equity. Decreases Liability DR=CR
Credit Right side of an account. Decreases Assets Increases Owners Equity Increases Liability DR=CR
Temporary Owners Equity Accounts are maintained for an accounting period (a year) and then closed to the permanent owners equity account (capital or retained earnings) Revenue Expense Drawing "Change. Zero it out"
Revenue Represents the receipt (inflow) of an asset resulting from business operations. Increase Equity. Cash (Common Asset) Sales Service Credit = Increase OE
Expense Represents the use (outflow) of an asset to generate revenue. Decreases Equity. Salaries Utilities Rent Wage Debit Side
Drawing Represents withdrawal (outflow) of an asset for personal use. Decreases Equity Debit Side
Trail Balance A list of all accounts showing the title and balance of each account.
Income Statements Summarizes revenue and expenses to determine the level of profit or loss.
Balance Sheet Summarize the assets, liabilities and owners equity at a specified date to determine the financial status of the organization.
Example: Assets= $50 Liability= $30 OE= $20
Purpose: Accounting Provide financial information regarding the current business operations to interested parties, especially outside stakeholders.
Financial Condition Profitability and Solvency
Managerial Performance Effectiveness v. Efficiency
General Ledger Includes assets, liabilities, and capital accounts grouped together.
Accounts Receivable Ledger Collection of all persons and businesses that owe money to the practice.
Accounts Payable Ledger Collection of all persons and businesses the practice owes money to.
Assets = Equities Equities represent the sources of assets or business interests.
Liabilities outside interest—creditor’s claim.
Owners’ Equity inside interest—owners’ claim. Affects two accounts: assets and liabilities
Created by: itsdelis