Principles-of-Financial-Accounting

Analysis of the transaction and selecting accounts to debit and credit.

The amounts are added to previous balances of zero, becoming the beginning balance for the new accounting period.

The accounting equation.

To report the revenue earned in a period in conjunction with the expenses incurred in that same period.

An expense account that is increasing.

Because the income statement for June reports only June transactions, and the income statement for July reports only July transactions.

The accounting equation.

Entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts and to zero out the temporary accounts.

The July balances erroneously contain amounts from June as well.

Assets, liabilities, and stockholders' equity.

A liability account that is increasing.

To set the balances of income statement accounts back to zero and start fresh for the next accounting period.

Date: 6/1, Account: Cash, Debit: $100, Credit: Fees Earned$100.

To record revenue earned when providing a service.

Assets = Liabilities + Stockholders' Equity.

Because closing entries on 6/30 were omitted.

Income Statement.

An asset account that is decreasing.

To give the customer thirty days to pay for the service provided, making it a revenue transaction on account.

Accounts on the income statement used to record operational transactions for a specific period of time.

Distributions of retained earnings to stockholders.

When the customer pays on the spot.

Assets, Liabilities, and Stockholders' Equity.

Net income, which is revenue minus expenses.

The company has received the product or service but has not paid for it yet.

They are set back to zero by transferring them to another account.

Not paid out of owner investments or common stock.

To indicate that a closing entry has been posted.

To track how much customers owe when a business sends invoices for goods or services.

It dictates whether the running balance will appear in the Debit or the Credit balance column.

Accounts that are not closed out at the end of the accounting period.

Cash is paid to the vendor, resulting in a zero balance in the account.

Asset, Liability, Stockholders’ Equity, Revenue, and Expense.

To prepare for the new accounting period and accumulate profit.

To substitute for the Retained Earnings account in the transaction of paying dividends.

Compound transaction.

Revenue and expense balances become zero, and the Retained Earnings balance increases.

If the first entry is a Debit, subsequent debit entries are added and credit entries are subtracted from the running balance.

When the customer pays the invoice for services provided on account.

Posting.

Assets = Liabilities + Stockholders’ Equity.

They are carried forward and become the starting balances at the beginning of the next period.

To report changes in the original amount without directly modifying the account.

To close the Cash Dividends account to Retained Earnings, reducing the Retained Earnings account by the profit paid out to stockholders.

It is used for closing entries and to store accumulated profit.

In the first Debit column.

The total of the debits and the total of the credits.

To prepare the accounts for the next accounting period and to ensure accurate financial reporting.

To gather the information necessary to produce the financial statements.

It becomes zero.

If the first entry is a Credit, subsequent credit entries are added and debit entries are subtracted from the running balance.

1. Take note of the account name in the first line of the journal. 2. Copy the date from the journal to the first blank row in that ledger. 3. Leave the Item column blank in the ledger at this point. 4. Take note of the amount on the first line of the journal and the column it is in. 5. Copy that amount to the same column in the ledger on the same line where you entered the date. 6. Update the account’s running balance.

Truck account debited with $30,000, and Cash account credited with$30,000.

Recording assets at what they cost the business or what the business paid to acquire them.

A list of all a business’s accounts and its current ledger balances to test whether total debits equals total credits.

Credit balance instead of the normal debit balance for an asset account.

It is set back to zero.

In the second Debit column.

Temporary accounts such as revenue, expense, and dividend accounts.

Because the assets will last more than one accounting period.

Produce the financial statements on a regular basis over the same time interval, such as a month or year.

The same as they are for Cash, since both are asset accounts.

A debit entry.

Amount customers owe to a business from being invoiced on account.

The buyer uses their own money (equity) and other people’s money (the loan) to pay for the truck.

Assets that are either cash or are expected to be converted to cash within one year.

Debit balance instead of the normal credit balance for a revenue account.

Added to the previous debit balance.

To recognize the investor's ownership and maintain a total of all investments made in the corporation.

To show the net income from a business’s operations for a period of time.

A credit entry.

Fixed assets are relatively expensive and will last for more than one accounting year, whereas expenses are costs related to a particular accounting period.

The asset is the truck, the liability is the loan, and the down payment is the owner’s equity.

To show the change in the Retained Earnings account balance from the beginning to the end of the month due to net income (or loss) and any cash dividends declared during the accounting period.

To maintain the running total for each account.

Journalize transactions, Post to ledgers, Income statement, Retained earnings statement, Balance sheet, Journalize closing entries, Post closing entries to ledgers.

Deducted from the previous debit balance.

Revenue - Expenses = Net income (or Net loss).

Based on the previous balance and the type of entry (Debit or Credit).

When an investor puts money or other assets into the corporation.

A formal, signed loan contract that may include an interest rate and spells out the terms and conditions of repayment over time.

The total of all the Debit balances must equal the total of all the Credit balances.

A trial balance may be generated at any time to check for accuracy before preparing financial statements.

Land, building, truck, equipment, and furnishings.

The amount of a business’s total assets that is owned by the stockholders.

1. Start with Retained Earnings balance at the beginning of the month. 2. Add net income from the current month’s income statement. 3. Subtract from net income any dividends declared during the month. 4. End with new Retained Earnings balance at the end of the month.

Subtract the debit amount from the balance and enter the difference in the Credit balance column.

Copying and/or calculating.

In either the Debit balance column or Credit balance column.

How much profit is it making?

It represents the accumulated profit over time and is used for paying cash dividends to stockholders.

The stockholders' share of ownership of the assets that the business possesses, or the claim on the business's assets by its owners.

There is an error that must be found and corrected.

Debts a business has on the assets it possesses, which are claims on the assets by people and entities that are not owners of the business.

Common Stock and Retained Earnings accounts.

The net income amount that appears on the retained earnings statement comes from the income statement. The ending retained earnings balance feeds to the stockholders’ equity section of the balance sheet.

No negative amounts should appear in the ledgers. Instead, the balance will appear in the opposite balance column.

The column in which its running total is maintained.

The matching principle, reporting revenue and expenses in a specified window of time.

A form of business that is a separate legal entity from its owners, and the people and/or organizations who own it are called stockholders.

Common Stock, Retained Earnings, or Cash Dividends accounts.

Accounts Payable is a payment agreement with a vendor who gives time to pay for a product or service, while Note Payable is a loan for cash or on any of the assets owned.

The ownership value in the business that comes from outside the company—investors who pay their own money into the business.

Both statements report a beginning balance, additions, subtractions, and an ending balance.

Enter an 'x' or checkmark in the PR column to indicate that the line item has been posted.

To ensure that the total of all the debit balances in a company’s ledger accounts always equals the total of all the credit balances.

To maintain a running balance of each account the business has.

Complete heading, two columns of numbers, dollar signs at the top number, category headings for revenue and expenses, expenses listed in order of highest to lowest dollar amounts, single underline above the result of a calculation, dollar sign on final net income number, double underline below the final net income result.

The owners can only lose what they invested in the business, and their other assets cannot be taken to satisfy the obligations of the company they invest in.

Credit any liability when it increases, and debit any liability when it decreases.

The ownership value in the business that comes from inside the company—the business makes a profit that is shared by the stockholders.

To maintain a running total for each account and update it every time an amount is posted.

The correct balances are not going to happen.

It shows the value of shares of stock issued to stockholders.

Assets = Liabilities + Stockholders’ Equity.

Payouts of profits from retained earnings to stockholders.

Superscripts are used to match each amount in the journal to its posting in the ledger.

It is where the corporation's profits accumulate and are 'stored'.

It increases.

They impact the value of stockholders’ equity by affecting the value of Retained Earnings.

As a contra (opposite) stockholders’ equity account.

Payouts of profits (retained earnings) to stockholders.

Due to a net loss or dividend payouts.

Credit balance.

It is reduced.

As a corporation, the liability is limited to the amount invested and earned in the business, while in a sole proprietorship, the risk is not limited to the amount invested and earned in the business.

To move the credit balances of revenue accounts into Retained Earnings and transfer the debit balances of expense accounts into Retained Earnings.

When revenue accounts are closed out into it.

It is closed into Retained Earnings.

Total stockholders’ equity.

Positive numbers represent increases and negative amounts indicate decreases.

When expense accounts and cash dividends are closed out into it.

Total assets equal total liabilities and stockholders’ equity.

Common Stock + Retained Earnings.

Assets = Liabilities + Stockholders’ Equity / Common Stock + Retained Earnings / Revenue - Expenses.

Total stockholders' equity becomes $30,000.

Total stockholders' equity becomes $90,000.

Total stockholders' equity becomes $75,000.