Term
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Definition
| an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities |
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Term
| Recordkeeping/bookkeeping |
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Definition
| recording of transactions and events, either manually or electronically |
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Term
| Identifying(business activities) |
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Definition
| selecting transactions and events relevant to an organization |
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Term
| Recording(business activities) |
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Definition
| keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format |
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Term
| Communicating (business activities) |
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Definition
| preparing accounting reports, analyzing and interpreting such reports |
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Term
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Definition
| not directly involved in running the organization |
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Term
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Definition
| the area of accounting aimed at serving external users by providing them with general purpose financial statements |
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Term
| Examples of External Users |
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Definition
| Shareholders(investors), lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press, nonexecutive employees |
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Term
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Definition
| directly involved in managing and operating an organization |
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Term
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Definition
| the area of accounting that serves the decision-making needs of internal users |
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Term
| Examples of Internal Users |
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Definition
| Managers, officers, sales staff, budget officers, controllers, internal auditors |
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Term
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Definition
| beliefs that distinguish right from wrong: accepted standards of good and bad behavior |
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Term
| Guidelines for Ethical Decisions |
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Definition
1. Identify Ethical Concerns
2. Analyze Options
3. Make Ethical Decision |
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Term
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Definition
| generally accepted accounting principles: financial accounting is governed by concepts and rules |
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Term
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Definition
| financial accounting standards board : private group that sets both broad and specific principles |
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Term
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Definition
| International Accounting Standards Board: issues international standards that identify preferred accounting practices in other countries |
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Term
| Measurement Principle (Cost Principle) |
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Definition
| accounting information is based on actual cost |
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Term
| Revenue Recognition Principle |
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Definition
| provides guidance on when a company must recognize revenue |
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Term
| Matching Principle (Expense Recognition) |
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Definition
| Prescribes that a company must record its expenses incurred to generate the revenue |
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Term
| Full Disclosure Principle |
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Definition
| Requires a company to report the details behind financial statements that would impact user's decisions |
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Term
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Definition
| accounting information reflects a presumption the business will continue operating |
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Term
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Definition
| we can express transactions in money |
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Term
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Definition
| presumes that the life of a company can be divided into time periods, such as months and years |
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Term
| Business Entity Assumption |
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Definition
| A business is accounted for separately from its owner or other business entities |
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Term
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Definition
| In response to a number of publicized accounting scandals (Enron, Tyco, WorldCom): help curb financial abuses: public companies apply both accounting oversight and stringent internal controls: more transparency, accountability, and truthfulness in reporting transactions |
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Term
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Definition
| Assets= Liabilities + Equity |
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Term
| Examples of Assets (resources owned or controlled by a company) |
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Definition
Cash
Accounts Receivable
Notes Receivable
Land
Vehicles
Store Supplies
Equipment
Buildings |
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Term
| Liabilities ( creditors' claims on assets) |
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Definition
Accounts Payable
Notes Payable
Taxes Payable
Wages Payable |
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Term
| Equity (Owner's claim on assets) |
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Definition
Dividends
Contributed Capital
Retained Earnings |
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Term
| Expanded Accounting Equation |
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Definition
| Assets= Liabilities + Equity (Contributed Capital-Dividends+ Revenues-Expenses) |
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Term
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Definition
| Dividends+ Revenues- Expenses |
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Term
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Definition
| Exchanges of value between two entities which yield changes in the accounting equation |
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Term
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Definition
| exchanges within an entity |
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Term
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Definition
| the process used to analyze transactions and events |
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Term
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Definition
| a company's revenues and expenses along with the resulting income or loss over a period of time due to earnings activities |
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Term
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Definition
| is the difference between revenues and expenses |
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Term
| Name the four financial statements |
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Definition
1. Income statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows |
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Term
| Accounts on an Income Statement |
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Definition
Revenues
Consulting Revenue
Expenses
Salaries Expense
Net Income |
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Term
| Statement of Retained Earnings |
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Definition
| reports information about how retained earnings changes over the reporting period |
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Term
| Accounts found on the Statement of Retained Earnings |
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Definition
Retained Earnings (usually $0)
Plus: Net Income
Less: Dividends
Retained Earnings |
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Term
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Definition
| describes a company's financial position at a point in time (snapshot) |
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Term
| Accounts found on a balance sheet |
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Definition
Assets
Cash, Supplies, Equipment, Total Assets
Liabilities
Accounts Payable, Notes Payable, Total Liabilities
Equity
Common Stock, Retained Earnings, Total Liabilities and Equity |
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Term
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Definition
| reports flows from operating activities, investing activities, and financing activities |
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Term
| Accounts on the Statement of Cash Flows |
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Definition
Cash flows from operating activities
Cash received from clients
Purchase of Supplies
Cash paid to employees
Cash from investing activities
purchase of equipment
net cash used
Cash flows from financing activities
investment by shareholders
borrowed at bank
dividends paid
net cash
net increase in cash |
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Term
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Definition
A profitability measure
net income/ average total assets |
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Term
| Analyzing and Recording Process |
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Definition
1. Analyze each transaction and event from source documents
2. Record relevant transactions and events in a journal
3. Post journal information to ledger accounts
4. Prepare and analyze the trial balance |
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Term
| Examples of Source Documents |
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Definition
| Checks, bill from suppliers, purchase orders, bank statements, sales tickets, employee earnings records |
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Term
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Definition
| a record of increases and decreases in a specific assets, liability, equity, revenue, or expense item |
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Term
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Definition
| a record containing all accounts used by the company |
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Term
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Definition
Land
Cash
Buildings
Equipment
Supplies
Accounts Receivable
Notes Receivable
Prepaid Accounts |
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Term
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Definition
Accounts Payable
Notes Payable
Accrued Liabilities
Unearned Revenue |
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Term
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Definition
| individuals and organizations that have the right to receive payments from a company |
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Term
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Definition
| a liability that is settled in the future when a company delivers its products or services |
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Term
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Definition
| amounts owed that are not yet paid |
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Term
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Definition
| corporations basic ownership share: capital stock |
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Term
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Definition
| a collection of all accounts for an information system: a company's size and diversity of operations affect the number of accounts needed |
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Term
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Definition
| A list of all accounts and includes an identifying number for each account |
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Term
| Ledger/Chart of Accounts analysis |
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Definition
| Assets = Liabilities + Equity (+common stock - dividends+ revenues- expenses) |
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Term
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Definition
| represents a ledger account and is a tool used to undestand the effects of one or more transaction: left side debit, right side credit |
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Term
| Double Entry Accounting ; Assets |
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Definition
Debit an Increase
Credit a Decrease |
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Term
| Double Entry Accounting: Liabilities |
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Definition
Debit a decrease
Credit an increase |
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Term
| Double Entry Accounting: Equity |
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Definition
Debit a decrease
Credit an increase |
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Term
| Double Entry Accounting : Equity (ct) |
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Definition
1. Common Stock (Decrease debit, increase credit)
2. Dividends (increase debit, decrease credit)
3. Revenue (Decrease debit, increase credit)
4. Expenses (increase debit, decrease credit) |
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Term
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Definition
| the difference between the increases and decreases in an account |
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Term
| Journalizing and Posting Transactions |
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Definition
1. Analyze transactions and source documents
2. Apply double-entry accounting
3. Record journal entry
4. Post entry to ledger |
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Term
| Six Steps for Searching and Correcting Errors (if trial balance does not balance, the errors must be found and corrected) |
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Definition
1. Verify that the trial balance columns are correctly added
2. Verify that account balances are correctly entered from the ledger
3. See whether a debit (or credit) balance is mistakenly listed as a credit (or debit)
4. Recompute each account balance in the ledger
5. Verify that each journal entry is properly posted
6. Verify that each journal entry has equal debits and credits |
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Term
| Which financial statements represent a) point in time, b) period of time |
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Definition
a) point in time: beginning balance sheet, ending balance sheet
b) period og time; income statement, statement of retained earnings, statement of cash flows |
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Term
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Definition
Describes the relationship between the the amounts of the company's liabilities and assets: helps to assess the risk that a company will fail to pay its debts
Total liabilities/total assets |
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Term
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Definition
| uses the adjusting process to recognize revenues when earned and expenses when incurred (matched with revenues) |
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Term
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Definition
| recognizes revenue when cash is received and records expenses when cash is paid: NOT consistent with GAAP or IFRS |
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Term
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Definition
| recorded to bring an asset or liability account balance to its proper amount |
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Term
| Prepaid (Deferred Expenses) |
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Definition
resources paid for prior to receiving the actual benefits
Decrease assets(credit)
Increase Expense (debit) |
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Term
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Definition
| long term tangible assets used to produce and sell products and services |
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Term
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Definition
| the process of allocating the costs of these assets over their expected useful lives |
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Term
| Straight-Line Depreciation |
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Definition
| allocates equal amounts of the asset's net cost to depreciation during the useful life |
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Term
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Definition
| an account linked with another account: has an opposite normal balance, reported as a subtraction from the other account's balance |
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Term
| Closing Process: temporary (nominal) accounts |
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Definition
| accumulate data related to one accounting period . They include all income statement accounts, dividends, and the income summary account: closed at the end of the period to get ready for the next accounting period |
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Term
| The Closing Process: Permanent (real ) accounts |
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Definition
| report activities related to one or more future accounting periods: they carry ending balances to the next accounting period and are not 'closed' |
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Term
| Recording Closing Entries |
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Definition
1. Close Revenue Accounts
2. Close Expense Accounts
3. Close Income Summary Account
4. Close dividends Account (close out to retained earnings) |
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Term
| How to close revenue acounts |
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Definition
Debit revenue
Credit income summary |
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Term
| How to close expense accounts |
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Definition
Credit to Expenses
Debit to Income Summary |
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Term
| How to close income summary account/dividends |
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Definition
| close the accounts to retained earnings |
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Term
| Post Closing Trial balance |
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Definition
1. Trial balance prepared after the closing entries have been posted
2. The purpose : to insure that all nominal or temporary accounts have been closed
3. The only accounts on this trial balance = assets, liabilities, and equity |
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Term
| 9 Steps of the Accounting Cycle |
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Definition
1. Analyze Transactions
2. Journalize
3. Post
4. Prepare Unadjusted Trial Balance
5. Adjust
6. Prepare adjusted trial balance
7. Prepare Statements
8. Close
9. Prepare Post-Closing Trial Balance |
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Term
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Definition
Assets
Current Assets
Noncurrent assets
long-term investments
plant assets
intangible assets
Liabilities
Current liabilities
noncurrent liabilities
equity |
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Term
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Definition
| those expected to come due (either collected or owed) within one year or the company's operating cycle, whichever is longer) |
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Term
Classified Balance Sheet
1. Plant Assets
2. Intangible Assets |
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Definition
1. Plant assets are tangible assets that are both long lived and used to produce or sell products or services. Examples include equipment, machinery, buildings, and land that are used to produce or sell prodcuts and services
2. Long term resources that benefit busines operations: lack physical form and have uncertain benefits( include patents, trademarks, copyrights, franchises, and goodwill) |
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Term
Liabilities
1. Current
2. Long-Term |
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Definition
1. obligations due to be paid or settled within one year or the operating cycle, whichever is longer
2. Obligations not due within one year or the operating cycle, whichever is longer |
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Term
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Definition
Measures the company's net income to net sales
net income/net sales |
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Term
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Definition
an important measure of a company's ability to pay its short-term obligations
current assets/current liabilities |
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Term
| Merchandiser inventory/Merchandiser |
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Definition
an item not on a service company's balance sheet
Net sales- cost of goods sold= gross profit
Gross profit- expenses= net income
earns net income by selling and selling merchandise |
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Term
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Definition
revenues-expenses= net income
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Term
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Definition
| an intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers |
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Term
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Definition
| an intermediary that buys products from manufacturers or wholesalers and sells them to consumers: retailers sell both products and services |
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Term
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Definition
| a deduction from the invoice price granted to induce early payment of the amount due |
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Term
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Definition
2= discount percent
10= number of days discount is available
n= otherwise net (or all) is due in thirty days
30= credit period |
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Term
| What happens when a discount is not taken? |
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Definition
| if we fail to take 2/10, n/30, 365(days in a year) / 20 days (number of additional days before payment) X 2% ( percent paid to keep money) = 36.5% annual rate |
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Term
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Definition
| merchandise a buyer acquires but then returns to the seller |
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Term
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Definition
| a reduction in the cost of defective or unacceptable merchandise that a buyer acquires |
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Term
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Definition
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Term
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Definition
| (seller pays): ownership of seller until product gets to buyer |
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Term
| Multiple-Step Income Statement |
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Definition
| detailed computations of net sales and other costs and expenses (subtotals) |
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Term
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Definition
| merchandise inventory as a current asset, usually after a/r according to an asset's nearness to liquidity |
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