Chapter 2 Accounting Vocabulary: - Georgetown ISD



Chapter 6

Worksheets

GAAP #5: Consistent Reporting

The same accounting principal must be followed in the same way in each accounting period.

Fiscal Period: length of time for which a business

summarizes and reports financial information.

Fiscal Year: A fiscal period consisting of 12 consecutive months.

o Most businesses use 1 year because federal and state taxes reports are based on 1 year.

o Fiscal periods can begin on any date.

GAAP #6

Accounting Period Cycle: Changes in financial information are reported for a specific period of time in the form of financial statements.

Work Sheet: A columnar accounting form used to

summarize the general ledger information used

to prepare financial statements.

o Worksheets are a planning tool (not a permanent record)

Purpose of Worksheet

1. Prove Debits equal Credits in the general ledger

(Trial Balance columns)

2. Plan needed changes to general ledger accounts

(Adjustment columns)

3. Separate account balances according to financial

statements to be prepared

4. Calculate net income or net loss for the fiscal period.

Trial Balance: Proof of equality of debits and credits.

Prepaid Expense: Cash paid for an expense in one fiscal period that is not used until a later period.

GAAP #7

Matching Expenses With Revenue: Revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period.

Accrual Basis of Accounting: Reporting income when it is earned and expenses when they are incurred.

Cash Basis of Accounting: Reporting income when the cash is received and expenses when the cash is paid.

GAAP #7

Materiality: The amount of an error or omission in the accounting records is not big enough to affect business decisions.

Adjustments: Changes recorded on a worksheet to update general ledger accounts at the end of a fiscal period.

Income Statement: a financial statement showing the revenue and expenses for a fiscal period.

Balance Sheet: a financial statement that reports assets, liabilities, and owner’s equity.

Net Income: difference between total revenue and expenses when total revenue is greater.

Net Loss: difference between total revenue and expenses when total expenses are greater.

Typical Calculation Errors

Difference is 1: (.01, .10, 1.00) Error most likely addition

Difference can be divided evenly by 2

-Divide the amount by 2

-Look for that amount in the trial balance column

-make sure it is in the correct column

Difference can be divided by 9.

-look for transposed number

Or

-possible slide:

Example $120 is entered as $12

Difference is an omitted amount

-look for an amount equal to the difference

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