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Accounting

QuestionAnswer
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