2.  Business-entity - A business should be a separate entity from the owner of a business  Personal items  Records and transactions

3.  Continuing-concern concept – the business will continue to operate.  Allows assets to be recorded at cost  Remain at that figure no matter what the market value may be  If sold, the assets of the company will be valued at market value to determine selling price

4.  Time-period concept – divides the business into equal periods of time,  ie month, quarter or year

5.  Cost principle – assets are carried at cost on the financial statements  Cost is what was paid for the asset  An item from your home - used value

6.  Matching principle – earnings and expenses are recorded in the period when one benefits the other  ie September expenses are recorded in the same period as September revenue

7.  Consistency Principle – Methods and procedures are kept the same over time.  Allows for better comparison of data  If changed, change and effect must be reported on Financial Statements

8. Adjusting Entries – Unpaid and/or unrecorded transactions at the end of the accounting period.

9. Balance Sheet - A “snapshot” of the business’ Assets, Liabilities and Owner’s Equity on a specific date.

10. Closing Entries – entries made to close (zero out) all temporary accounts at the end of the accounting period.

11. Income Statement - profit or loss of a business Earnings less expenses reflects a period of time (usually one month)

12. Journal – the book of original entry all transactions are recorded here first

13. Transactions – business papers and source documents that change the financial position of a business

14.  Step 1Business Transactions occur  Source Documents (receipts, invoices, tapes, checks and memorandums) Book of Original Entry

15.  Step 2Analyze and Record the Transactions  Information is placed in the Journal by date of occurance Book of Original Entry

16.  Step 5Journalize Adjusting Entries  No source documents  End of fiscal period  To match revenue with expenses in that period Book of Original Entry

17.  Step 6Post Adjustment from Journal to Ledger  General Leger only Book of Original Entry

18.  Step 7Prepare Adjusted Trial Balance  To determine if an error in posting has occurred before Financial Statements are prepared Book of Original Entry

19.  Step 8 Journalize Closing Entries  Close all temporary ( NOMINAL) accounts  Revenue  Expenses  Drawing Book of Original Entry

20.  Step 9Post Closing Entries from the Journal to the Ledger  General Ledger only Book of Original Entry

21.  Step 10Post Closing Trial Balance  Permanent accounts only Book of Original Entry

22.  Step 11 Prepare the Financial Statements  Basic Statements  Income Statement  Balance Sheet Book of Original Entry

24. Permanent Accounts Assets Liabilities Capital Temporary Accounts Revenue Expenses Drawing

26.  Record Revenue (earnings) and expenses  Cash basis  Cash in Cash out  Accrual basis  Record Revenue & Expenses when earned/incurred  Cash is not the same as revenue  Matching principle

27.  1 st question asked:  Cash  Accrual  Other

28.  Small businesses  Simple to understand  Record cash only when received  Record expenses when cash is paid or check is issued  Record credit card charges when signed for  Combination  Income and expense clearly shown  Consistently  Can not switch between the two

29.  Always use when merchandise is a factor  Production  Purchase  Sale  More difficult to understand  Timing of revenue and expenses  Nothing to do with payments or receipts

30. Only Cash Not Paid All Revenue