Financial Accounting (Chapter 3-4) – Flashcards
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Accounting Information System
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The system of collecting and processing transaction data and communicating financial information to decision-makers.
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Accounting Transactions
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Events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity.
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Electronic Data Processing (EDP)
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Most businesses use computerized accounting systems.
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Account
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An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items.
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Debit
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Left side of an account.
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Credit
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Right side of an account.
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Normal Balances (Plus Side)
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Debit: - Assets - Dividends - Expenses Credit: - Liabilities - Equity - Revenue
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Trial Balance
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1. Assets 2. Liabilities 3. Stockholders' Equity 4. Revenue 5. Expenses
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Cash-Basis Accounting
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- It's not income until I receive it. - Companies record revenue when they receive cash and an expense when they pay out cash. - It's not in accordance with GAAP.
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Accrual-Basis Accounting
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- Transactions that change a company's financial statements are recorded in the periods in which the events occur. - Revenues and expenses are recognized when enacted even if cash wasn't paid.
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Adjusting Entries
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- Ensure that the revenue recognition and expense recognition principles are followed. - Required every time a company prepares financial statements. - One balance sheet account and one income statement account. - No cash.
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Net Book Value (NBV)
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Cost of asset minus asset depreciation.
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Type-1 Adjusting Journal Entry
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- Debit Expense. - Credit Asset.
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Type-2 Adjusting Journal Entry
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- Debit Liability. - Credit Revenue.
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Type-3 Adjusting Journal Entry
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- Debit Expense. - Credit Liability.
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Type-4 Adjusting Journal Entry
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- Debit Asset. - Credit Revenue.
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R.E.I.D. Accounting
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1. Close Revenues into Income Statement. 2. Close Expenses into Income Statement. 3. Close Income Statement into Retained Earnings. 4. Close Dividends into Retained Earnings.
