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    Accounting Basics Cheat Sheet

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    Accounting Basics Cheat Sheet

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    148 views5 pages

    Accounting Basics Cheat Sheet

    Uploaded by

    xzxhiujinh

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    Accounting Basics

    (Cheat Sheet)

    Harold Averkamp
    CPA, MBA

    Our materials are copyright © AccountingCoach, LLC and are for personal use by the original
    purchaser only. We do not allow our materials to be reproduced or distributed elsewhere.
    Accounting Basics
    Accounting basics is often described by the following actions:

    • Recording the vast number of transactions that a business (or other organization) experiences.
    • Sorting and storing the transactions in accounts within the company’s general ledger.
    • Adjusting the account balances prior to issuing financial statements in order to comply with
    the accrual method of accounting as well as other accounting principles and standards.
    • Issuing financial statements to a variety of people for various accounting periods (annual,
    monthly, etc.).

    However, the field of accounting also includes management accounting, income tax accounting,
    auditing, accounting systems, SEC reporting, and more.

    Double-entry System
    Generally, accounting is accomplished by the use of the double-entry system (or double-entry
    bookkeeping). This means that every transaction and/or accounting entry will affect a minimum of
    two accounts. For example, paying the rent usually means an entry to the account Cash and to the
    account Rent Expense.

    In addition, double entry requires that at least one account will be debited (entering an amount on
    the left side of an account) and at least one other account will be credited (entering an amount on the
    right side of an account). As a result of double entry, the company’s general ledger accounts should
    always have the total amount of the debit amounts equal to the total amount of the credit amounts.

    Double entry also assures that the accounting equation will remain in balance. (The accounting
    equation is: Assets = Liabilities + Stockholders’ Equity.)

    Types of General Ledger Accounts


    The accounts in the general ledger of a corporation consist of two major categories:

    • Balance sheet accounts (assets, liabilities, stockholders’ equity)


    • Income statement accounts (revenues, expenses, gains, losses)

    For personal use by the original purchaser only. Copyright © AccountingCoach®.com. 2


    A few examples of the balance sheet accounts include Cash, Accounts Receivables, Prepaid Expenses,
    Equipment, Accounts Payable, Notes Payable, Accrued Expenses Payable, Common Stock, Retained
    Earnings and more. The balance sheet accounts are also referred to as permanent accounts since the
    balances in these accounts are not closed at the end of the accounting year. Rather, the balances at
    the end of the year are carried forward to become the beginning balances of the following year.

    A few examples of the income statement accounts include Sales Revenues, Service Revenues,
    Investment Income, Wages Expense, Rent Expense, Utilities Expense, Advertising Expense, Insurance
    Expense, Depreciation Expense, Interest Expense, Gain on Sale of Assets, Loss from Lawsuit,
    and many more. The income statement accounts are referred to as temporary accounts because
    the account balances are closed at the end of the accounting year. When the income statement
    accounts are closed, the net amount will be recorded in a stockholders’ (or owner’s) equity account.
    The income statement accounts will begin each accounting year with zero balances.

    External Financial Statements


    When a corporation releases its financial statements to people outside of the corporation, they are
    to include the following:

    • Income statement
    • Statement of comprehensive income
    • Balance sheet
    • Statement of stockholders’ equity
    • Statement of cash flows
    • Notes to the financial statements

    Income Statement
    The income statement is also known as statement of earnings, statement of operations, profit and loss
    statement (P&L). The amounts on the income statement are the revenues, expenses, gains, losses,
    and the resulting net income that occurred in the accounting period. This is best done by following
    the accrual method of accounting.

    For personal use by the original purchaser only. Copyright © AccountingCoach®.com. 3


    Statement of Comprehensive Income
    The statement of comprehensive income reports 1) the amount of net income from the income
    statement, plus 2) some additional items referred to as other comprehensive income.

    Examples of other comprehensive income include gains and losses from foreign currency
    adjustments, hedging, and postretirement liabilities.

    Balance Sheet
    The balance sheet is also known as the statement of financial position. The balance sheet reports
    the balances in the asset, liability, and stockholders’ equity accounts as of the final moment of the
    accounting period. Similar to the accounting equation, the balance sheet must always be in balance.
    For instance under the accrual method of accounting, when a corporation earns revenues and
    allows the customer to pay 30 days later, both the asset Accounts Receivable and the stockholders’
    equity account Retained Earnings will increase. (However, the amount earned will first be recorded
    in the temporary account Revenues Earned in order for the amount to easily be reported on the
    income statement.)

    Statement of Stockholders’ Equity


    The statement of stockholders’ equity lists the changes that occurred during the accounting period
    in the corporation’s stockholders’ equity accounts. These general ledger accounts include common
    stock, preferred stock, retained earnings, accumulated other comprehensive income, and treasury
    stock.

    For personal use by the original purchaser only. Copyright © AccountingCoach®.com. 4


    Statement of Cash Flows
    The statement of cash flows (SCF) is also referred to as the cash flow statement. The SCF is necessary
    because the income statement reflects the accrual method of accounting (not the cash method).
    The statement of cash flows lists a corporation’s significant cash inflows and cash outflows that
    had occurred during the accounting period. The cash flows are listed under one of the following
    categories: operating activities, investing activities, and financing activities. The total of the three
    categories should equal the change in the amount of the corporation’s cash and cash equivalents
    during the accounting period.

    Notes to the Financial Statements


    The amounts appearing on the face of the financial statements cannot adequately communicate
    all of the complexities involved in the business activities. Therefore, additional information must be
    disclosed in the notes to the financial statements.

    For personal use by the original purchaser only. Copyright © AccountingCoach®.com. 5

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