Cheat Sheet – CKSF High School Accounting
What is the basic accounting equation?
______of a company represent the resources owned by the company.
What are liabilities?
_______ is the amount of money that a person has invested into an organization.
Express an income statement as an equation.
Types of revenues.
See link: https://accountingexplained.com/financial/introduction/revenue
Parts of a basic financial statement.
See link: http://highered.mheducation.com/sites/0073324833/student_view0/ebook/chapter1/chbody1/the_four_basic_financial_statements__an_overview.html
Which financial statement tells whether or not a company has made or lost money in a given period?
_______ is the sum of all money that has been brought into a company in an accounting period.
If you have $6,500 dollars in equity and $10,000 in liability, how much money would you have in assets?
If you have $3,000 in assets and $7,500 in liabilities, what is the owner’s equity?
What is the first step of recording transactions in a general journal?
What is the difference between debit and credit?
If you have $7,500 in revenue and $4,500 in expenses, what is your net income?
If your net income is $7,000 and your expenses are $8,000, what is your revenue?
Which side of a T-account are debits always on?
Which side of a T-account are credits always on?
A(n) __________ is a visual presentation of the journal entries recorded in a general ledger.
What is the accounting cycle?
What is double-entry accounting?
What is the amount of money owed by customers to a business after goods or services have been delivered and used?
Which term describes the amount of money a company owes creditors in return for goods and/or services they have delivered?
What is a financial report that summarizes a company’s assets, liabilities and owner or shareholder equity at a given time?
Parts of a balance sheet.
See Link https://courses.lumenlearning.com/boundless-accounting/chapter/the-balance-sheet/
________ is a business document in which all ledgers are compiled into debit and credit columns in order to ensure a company’s bookkeeping system is mathematically correct?
What does GAAP stand for?
________ is/are a set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data.
________ are payments like rent that will happen in a regularly scheduled cadence.
Vocabulary and Concepts
Financial accounting concepts are the basic principles used in the preparation of financial statements.
The four most important financial statements in accounting are:
• Income statement: Summarizes financial results for an accounting period. Revenues – Expenses = Income.
• Balance sheet: Lists the assets and liabilities at the end of an accounting period. Assets = Liabilities + Equity.
• Cash flow statement: Shows the actual flow of cash into and out of an organization during the accounting period.
• Statement of retained earnings: Shows the dividends paid from earnings to shareholders and the earnings kept (retained) by the company.
Financial Accounting Concepts
Accounting concepts for preparing financial statements include:
• Conservatism (also called prudence): If a financial result can be reported in two ways, the least beneficial way is used.
• Consistency: An organization should use the same accounting method over time, and not change accounting methods between accounting periods.
• Cost principle: Accounts and financial statements show the actual cost of an asset, rather than the current value.
• Dual aspect: Every transaction involves at least two accounts.
• Money (or monetary) measurement: Only transactions that can be quantified in actual amounts of money are included on the financial statements.
• Step One: Identify and Analyze Transactions
• Step Two: Journalize
• Step Three: Post
• Step Four: Make an Unadjusted Trial Balance
• Step Five: Make Adjusting Entries
• Step Six: Make an Adjusted Trial Balance
• Step Seven: Prepare Financial Statements
• Step Eight: Close
• Step Nine: Make a Post-Closing Trial Balance
• Step Ten: Make Reversing Entries
Basic Record Keeping in Accounting
A basic record keeping system for a business generally consists of:
• A basic journal for recording transactions, such as revenues and expenses
• Accounts receivable and accounts payable records
• Inventory records
• Payroll records
• Petty cash records
• Records also include tracking of assets and liabilities.
Accountants use an accounting worksheet to compile, organize, and structure data from the ledger accounts onto one page.
Structure of an Accounting Worksheet
Although the structure of a worksheet can vary, depending on the purpose for which the accountant is preparing the sheet, the traditional accounting worksheet usually has a far left column that contains a list of all the open accounts, plus five pairs of debit and credit columns. One pair at a time would be completed, from left to right.
• The first pair of columns contains the debit or credit balance for the accounts listed in the far left column. This pair of columns is the unadjusted trial balance
• The second pair of columns contains adjusting entries for the accounts
• The third pair of columns is for the adjusted trial balance (Some worksheets skip using these columns)
• The fourth pair of columns is for income statement data (revenue and expense account balances)
• The fifth pair of columns is for balance sheet data (assets, liabilities, owner’s capital, and owner’s draw)
If the worksheet contains the third, adjusted trial balance column, the accountant can take the numbers from that third column and enter them in the appropriate place in either the fourth or fifth column.
Determining Net Income or Loss
After completing the fourth and fifth columns, the accountant finds the sum totals of the columns. In the income statement columns, if total credits are more than total debits, there’s net income. The accountant then adds the net income number to the debit column for the income statement and to the credit column (representing an increase in owner’s equity) for the balance sheet.
If the income statement column shows total debits more than total credits, there’s a net loss. The accountant then adds the net loss number to the income statement’s credit column and to the balance sheet’s debit column.
The worksheet is now complete and can be used to prepare financial statements.
Double Entry Accounting
The simplest type of accounting system involves simply making a list of income and expenses recorded when a cash transaction occurs–that’s called single entry (or cash) accounting.
In contrast, a double entry accounting system consists of a chart of accounts where every financial transaction is recorded into at least two of the accounts, once as a debit and once as a credit. This is done to add an additional layer of verification to further ensure the accuracy of the accounting.
Chart of Accounts
Setting up a double entry accounting system consists of setting up a chart of accounts in a general ledger. There are five basic types of accounts made up of three balance sheet accounts (assets, liabilities, and equities) and two income statement accounts (revenue and expenses).
• Examples of asset accounts: Cash and Accounts Receivable.
• Examples of liability accounts: Accounts Payable and Wages Payable.
• Examples of equity accounts: Retained Earnings and Common Stock.
• Examples of revenue accounts: Merchandise Sold and Service Revenues.
• Examples of expense accounts: Wages Paid, Rent, and Office Supplies.
When a financial transaction occurs, entries are made in at least two of the accounts on the chart of accounts. In a general ledger chart of accounts, debits are recorded on the left side and credits are recorded on the right side.
The left side must always equal the right side.
The Basic Accounting Equation and Examples of Double Entry Accounting
The basis of double entry accounting is the equation:
Assets + Expenses = Liabilities + Equities + Revenues.
Increases in assets and expenses are left side entries (debits) in the chart of accounts, and increases in liabilities, equities, and revenues are right side entries (credits).
Account Name Debit Credit
Cash $10,000 –
Common Stock – $10,000
GAAP and International Accounting Standards
GAAP are U.S.-based accounting standards. Each country has its own accounting standards, creating challenges for companies that do business across borders. These differences affect everything from how depreciation and amortization are treated to how financial statements are structured.