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 period’s 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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This note was uploaded on 02/04/2011 for the course BADM 066 taught by Professor Bailey during the Fall '07 term at GWU.

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Accounting Midterm Notes - Accounting Midterm Notes •...

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