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