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Accounting
| Question | Answer |
|---|---|
| what is the purpose of accounting | to provide financial information for decision making |
| what is the accounting cycle | the set of accounting procedures performed in each accounting period |
| asset | item of value owned by a business or person |
| example of an asset | cash |
| liability | the debts of a business or person |
| example of a liability | accounts payable |
| what is the accounting equation | A=L+OE |
| owner's equity | the owner's claim against the assets of the company |
| what are the amounts owed to a business by customers (debtors) called | accounts receivable |
| what are the amounts owing by a business to suppliers (creditors) called | accounts payable |
| what are drawings | owner withdraws money from the business |
| revenue | amounts earned by the business from sale of goods/services |
| example of revenue | sales |
| expense | costs incurred to generate revenue |
| example of an expense | rent expense |
| what are the two financial statements of a business | 1) income statement 2) balance sheet |
| balance sheet | lists assets, liabilities, owner's equity as at a specific date (snapshot) |
| income statement | calculates revenue and expenses, calculates net income over a period of time (movie) |
| what is a classified trial balance sheet | breaks down into current vs. long-term assets and liabilities |
| current assets | current is used up within one year |
| example of a current asset | cash |
| fixed assets | fixed will stick around for more than one year |
| example of a fixed asset | building |
| current liability | paid off within a year |
| example of a current liability | accounts payable |
| long-term liability | paid in more than a year |
| example of a long-term liability | bank loan |
| what are the five types of accounts | assets, liabilities, owner's equity, revenue, expenses |
| what is a debit | left side |
| two types of accounts that are debited | cash and accounts receivable |
| what is a credit | right side |
| two types of accounts that are credited | accounts payable and capital |
| double-entry system | debits=credits for each transaction |
| what is a contra-account | an account whose balance reduces the value of the account it describes |
| example of a contra asset | accumulated depreciation |
| what types of accounts are found on a balance sheet | assets, liabilities and owner's equity (permanent accounts) |
| what types of accounts are found on an income statement | revenue and expense (temporary account) |
| revenue increases/decreases owner's equity | increases |
| drawings increases/decreases owner's equity | decreases |
| expenses increases/decreases owner's equity | increases |
| net income increases/decrease owner's equity | increases |
| net loss increases/decreases owner's equity | decreases |
| what financial statement is made first | income statement bc you need net income/loss to calculate ending capital |
| what is the purpose of a trial balance | to see if everything balances before creating the statements or to find errors in journal/posting |
| chart of accounts | list of all account names and numbers in the general ledgeress |
| what are the four parts of every journal entry | 1. date, 2. debit, 3. credit, 4. explanation |
| what is the general journal also know as | book of original entry |
| what is a compound entry | an entry that has more than one debit or credit |
| what is a transposition error | divisible by 9, numbers are flipped |
| list the different types of source documents | cash sales slip, cheque received/issued, purchase invoice, sales invoice, bank debit/credit memos |
| cash sales slip | cash is used as payment |
| sales invoice | the business sells something on credit |
| purchase invoice | the business purchases something on credit |
| bank credit memo | increases a company's checking account balance |
| bank debit memo | decreases a company's checking account balance |
| transferring entries from the journal to the ledger is called what | posting |
| on the balance sheet what order should current assets appear in | liquidity |
| on the balance sheet what order should liabilities appear in | maturity date (when it needs to be paid by) |
| what are the GAAPs | generally accepted accounting principles |
| cost principle | the business always lists assets at the original cost that they had paid for them |
| business entity concept | the business is considered a separate entity from the owner's personal financial data |
| conservatism principle | the accountant must select that accounting option that will result in the lower net income and net assets |
| materiality principle | anything of material importance needs to be disclosed in financial statements |
| matching principle | expenses for an accounting period must be matched with the revenue that they helped to generate |
| objectivity principle | accounting records should be based on the objective evidence provided by source documents to support the values used in recording transactions |
| what does IFRS stand for | International Financial Reporting Standards |
| what year was IFRS introduced | 2011 |
| public companies in canada must follow which set(s) of standards | IFRS |
| private companies in canada must follow which set(s) of standards | IFRS and ASPEs |
| what does ASPE stand for | Accounting Standards for Private Enterprises |
| at the end of an accounting period what type of entries are prepared and posted before closing | adjusting and closing entries |
| prepaid expense | expense payments made in advance, a current asset |
| examples of a prepaid expense | prepaid rent and prepaid insurance |
| depreciation | the allocation of the cost of a fixed asset to the periods in which it is used, fixed asset losing value over time |
| straight-line depreciation | depreciation expense is the same every year |
| declining balance depreciation | greater amount of depreciation taken at the beginning of the asset's life |
| how is straight-line depreciation calculated | (cost-salvage value)/useful life |
| how is declining-balance depreciation calculated | (cost-accumulated depreciation) x depreciation rate |
| how is the book value of a fixed asset calculated | original cost-accumulated depreciation |
| what financial statement does accumulated depreciation belong on | balance sheet |
| does accumulated depreciation have a normal balance of DR or CR | CR |
| accrual basis of accounting | records revenue when earned, records expense when incurred |
| to record supplies used | DR supplies expense CR supplies |
| to record rent expired | DR rent expense CR prepaid expense |
| to record depreciation | DR depreciation expense CR accumulated depreciation |
| what are the four steps to closing | 1.close revenue into income summary 2.close expenses into income summary 3. close income summary into capital 4.close drawings into capital |
| temporary accounts | are closed to zero at the end of the accounting periods |
| example of a temporary account | drawings, expenses, revenue |
| permanent accounts | carried over between periods |
| example of a permanent account | assets, liabilities, owner's equity |
| what is the professional accounting designation in canada | chartered professional accountant |
Created by:
syddj123
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