Page 24 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Expense/Costs
It is the expenditure incurred by enterprise to earn revenue. An expense is funds paid by the
college. For example-paychecks to employees, reimbursements to employees, payments to
vendors for goods or services.
Equity: It refers to total claims against enterprise. It is further dividers into Owner's Claim
(Capital) and Outside’s Claim (Liability).

GAAP

GAAP stands for Generally Accepted Accounting Principles which are conventions, rules, and
procedures necessary to define accepted accounting practice at a particular time. The highest
levels of such principles are set by FASB.

FASB

FASB stands for Financial Accounting Standards Board which is an independent, private,
nongovernmental authority for the establishment of accounting principles in the United States.

General Ledger

The general ledger is the collection of all asset, liability, fund balance (net assets), revenue and
expense accounts.

Journal Entry

A journal entry is a group of debit and credit transactions that are posted to the general ledger.
All journal entries must net to zero so debits must equal credits.

Liability

A liability is what the college owes. For example-loans, taxes, payables, long term debt from a
bond issue, funds held by the college for a third party such as a student group.

Subsidiary Ledger

A subsidiary ledger is a group of accounts containing the detail of debit and credit entries. For
example detail information contained in Accounts Payable.

Revenue
Revenue is funds collected by the college; it can also be called income. It is monetary value of
products/services sold to customers during the period. For example-tuition, fees, rentals, income
from investment.

Cash Book

Cash book was used to record all cash and bank related transactions. Some records only the cash
related transactions while other use the cash book for both type of transactions. A cash book
which is used to record both cash and bank transactions is referred to as Two-column Cash Book.
Some accountants use cash book as Cash Book cum Journal. One column of the cash book on
both the pages is used for cash transactions and other column for recording all other entries
including bank transactions.

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