The Balance Sheet – Flashcards
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Financing
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Key activity of starting up a company; 2 sources are available: equity (through owners contributions and reinvestments of profit) and debt (loans)
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Cost
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Dollar amount that represents the value of items given and received
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Cost principle
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Financial effects of exchange
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Chart of accounts
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A list that designates a name and reference number that the company will use when accounting for each item it exchanges
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Notes payable are like accounts payable except that they
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1. charge interest 2. can be outstanding for large periods of time 3. are documented using formal documents called notes
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Accounting cycle
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repeated day after day, month after month, year after year
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Who has claim to a business's assets should the company go out of business?
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Creditors
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Financing activities
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Issuing a note payable, and issuing stock
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Key activities necessary to starting a business
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Purchase assets, obtain financing
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Investing activities
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Purchasing land, purchasing equipment
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The cost principle requires what
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Assets be recorded at the amount paid for them at the time of purchase
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Business's typically buy goods and services from others
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On account
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Business documents
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Bills, invoices, stock certificates
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A chart of accounts is a
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List of account titles with corresponding reference numbers used by companies so that the transaction items are consistently named
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A company typically receives this when it issues stock to its owners (an asset)
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Cash
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Account titles that may be used to record borrowing cash in exchange for a promissory note
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Note payable, loan payable
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When a company pays its suppliers for accounts owed, its cash and accounts ________ accounts are decreased
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Payable
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An accounting system provides
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Fiancial information needed to manage a company and financial information needed to report results to outsiders
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Transactions are first entered into the
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Journal
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The effect of journal entries on each account is summarized in the
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Ledger
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Accounts payable is in increased with an entry on the _______ side of the account
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Right
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The contributed capital account is increased with an entry on the _______ side of the T-account
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Right
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Debit must always equal what in each journal entry
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Credit
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Steps for ledger accounts
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Dollar amounts from journal entries are copied (posted) the appropriate accounts in the ledger, so that the account balances can be posted
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The balance sheet at year end shows
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the ending balance in each T-account
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On the balance sheet, equipment is reported at its
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original cost
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The current ratio measures a companys
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ability to pay and short-term liquidity
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List the steps in the accounting order in chronological order
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1. record journal entry 2. summarize in the ledger (t-accounts) 3. prepare an unajusted trial balance 4. adjust the accounts 5. prepare financial statements 6. close the books
