Accounting Midterm Notes

Accounting Midterm Notes - Accounting Midterm Notes...

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Unformatted text preview: Accounting Midterm Notes Financial statements are the business documents that companies use to report the results of their activities to various user groups Accounting is an information system, it measures business activities, processes data into reports and communicates results to decision makers Financial accounting provides information for decision makers outside the entity, such as investors, creditors and the public Management accounting provides information for managers The Financial Accounting board (ASB) formulated the Generally Accepted Accounting Principles (GAAP) The entity is any organization that stands apart as a separate economics unit The continuity (going-concern) assumption is that we assume the entity will continue to operate long enough to use existing assets for its intended purpose. Net income is the single most important item in the financial statements When you take a loan out from the bank, your cash (assets) go up as well as your liabilities, which balances the accounting equation (Assets= Liabilities + Common Stock + Retained Earnings, A = L + CS + RE) Earnings is equivalent to net income if positive and net loss if negative Journal Entry T- Accounts Trial Balance Financial Statements Closing Entries The Trial Balance o The trial balance is a list of all accounts with their ending balances Asset first followed by liabilities and then stockholders equity o The trial balance aids in the preparation of the financial statements by summarizing all the account balances o The trial balance provides a check on accuracy by showing whether total debits equal total credits Closing Entries o Done after financial statements are prepared o Set temporary balances to retained earnings account o Journalizes activity in statement of retained earnings Temporary Accounts (They need to be closed, reduced to zero balance, by closing entries) o Revenues o Expenses o Dividends Permanent Accounts (No need to be closed, their ending balances of one period carry over to the following periods beginning balances) o Assets o Liability o Common Stock o Retained Earnings Current assets are assets that are expected to be converted to cash, sold, or consumed during the next 12 months Current liabilities are debts payable within one year Liquid means how many assets you have to pay bills PPE- Property Plant Equipment is non-current assets, such as furniture, cars, computers (have more than a year worth)...
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Accounting Midterm Notes - Accounting Midterm Notes...

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