Business Accounting

Business Accounting

1. Types of Accounts

   • Assets
     • Def: Anything that has future value
     • Attached Principle:
     • DR, permanent
   • Liabilities
     • Def: Anything that the company owes
     • Attached Principle: Revenue Recognition -- It's a liability because it states that you have to record revenue only when you have *earned* money. If you haven't earned it, you owe someone product/services so you can't record it.
     • CR, Permanent
   • Equity
     • Def: getting assets from business one partially ownes
     • Attached Principle:
     • CR, Temporary
   • Revenues
     • Def: Influx in $
     • CR, Temporary
     • Attached Principle:
   • Expenses
     • Definition: $ flows out
     • DR, Temporary
     • Attached Principle:

2. Trial Balance

   • Def: list of all the accounts a company uses with the balances in debit and credit columns
   • Sheets
     • Unadjusted -- reflects all the activity recorded from day-to-day transactions and is used to analyze accounts when preparing adjusting entries.
     • Adjusted: completed after the adjusting entries are completed; has the final balances in all the accounts and is used to prepare the financial statements.
     • Post Closing -- shows the balances after the closing entries have been completed; is your starting trial balance for the next year.

3. General Leger

   • Def: grouping of all T accounts with their balances
   • General Journal accounts posted here

4. General Journal

   • The original "General"
   • Def: Chronological record of all company transactions listed by date

5. Adjusting Entries on Net Income

6. Types of Financial Statements

   • Income Statement
   • Statement of Retained Earnings
   • Balance Sheet

7. Important Principles

   • Revenue Recognition -- you have to record revenue only when you have *earned* money. If you haven't earned it, you owe someone product/services and until you do the work, you can't record it.
   • Time Period Concept -- A company can make a business cycle last anywhere from a week to a year, though it is usually at the end of the (fiscal) year.
   • Matching Principle -- the expense or cost of doing business is recorded in the same period as the revenue that has been generated as the result of incurring that expense or cost

8. The Order of Sheets

9. Differences between Permanent and Temporary Accounts

   • Can it go on an income statement or is a divided? If so, it's temporary.

10. Accounting Cycle

    • 1. Analyze and Journalize
      • 2. Post the journal entries to the general ledger accounts
        • 3. Prepare a trial balance.
          • 4. Journalize and post the adjusting entries.
            • 5. Prepare an adjusted trial balance.
              • 6. Prepare financial statements.
                • 7. Journalize and post the closing entries.
                  • 8. Prepare a post-closing trial balance.
                  • Close out RED Accounts
                • Income Sheet
                • Statement of Retained Earnings
                  • Retained Earnings + Net Income = Subtototal Dividends Less = New Retained Earnings
                • Balance Sheet
                  • Use Chart of Accounts but Use New Retained Earnings
      • General Accounts-Day to Day