Accounting

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Debt Ratio

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Ratio of total liabilities to total assets. States the proportion of a company's assets that is financed w/ debt

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Current Ratio

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Crrent assets divided by current liabilities.
Measures a companies ability to pay current liabilities w/ current assets

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Multi-step Income Statement

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Income Statement that contains subtotals to highlight important relationships between revenues and expenses

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Report Format

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Balance sheet format that lists assets at the top followed by liabilities and stockholder's equity below

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Account format

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A balance sheet format that lists assets on the left and liabilities and stockholder's equity on the right

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Single-step income statement

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An income statement that lists all revenues together under a heading such as Revenues or Revenues and Gains. Expenses appear in a separate category called expenses or perhaps Expenses and Losses

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Classified Balance Sheet

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A BS that shows current assets separate from long term assets and current liabilities separate from long term liabilities

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Long Term Liability

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A liability that is not a current liability

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Current Liability

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A debt due to be paid within on year or within the entity's operating cycle if the cycle is longer than a year.

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Long Term Asset

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An asset that is not a current asset

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Operating Cycle

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Time span during which cash is paid for goods and services that are sold to customers who pay the business in chash

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Current Asset

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An asset that is expected to be converted to cash, sold or consumed during the next 12 mos, or w/in the business's normal operating cycle if longer than a year.

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Liquidity

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Measure of how quickly an item can be converted to cash

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Permanent Account

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Asset, liability and stockholder's equity accounts that are not closed at the end of the period

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Temporary Acct

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Revenue and expense accounts that relate to a limited period and are closed at the end of the period. For a coproration, the dividends acct is also temporary

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Closing entries

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Entries that transfer the revenue, expense and dividends balances from these respective accounts to the Retained Earnings account

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Closing the Books

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The process of preparing the accts to begin recording the next period's transactions. Consists opf journalizing and posting the closing entries to set the balances of the revenue, expense and dividends accts to zero.

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Adjusted trial balance

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A list of all the ledger accts with their adjusted balances

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Unearned Revenue

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A liability created when a business collects cash from customers in advance of earning the revenue. The obligation is to provide a product or service in the future.

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Accrued Revenue

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A revenue that has been earned but not yet received in cash

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Accrued Expense

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An expense incurred but not yet paid in cash

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Book value (of a plain asset)

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The assets cost minus accumulated depreciation

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Contra Account

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An account that always has a companion acct and whose normal balance is opposite of the companion acct

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Accumulated Depreciation

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The cumulative sum of all depreciation expense from the date of acquiring a plant asset

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Plant Assets

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Long lived assets, such as land, building and equip used in the ops of a business. Also called fixed assets

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Prepaid Expense

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Category of misc assets that typically expire or get used up in the near future. Ex: prepaid rent, prepaid ins, supplies

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Accrual

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An expense or revenue that occurs before the business pays or receives cash. Opposite of deferral.

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Depreciation

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Expense assoc w/ spreading the cose of a plant asset over its useful life.

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Deferral

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An adjustment for which the business paid or received cash in advance. Ex\; prepaid rent, prepaid ins and supplies.

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Matching principle

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The basis for recording expenses. Directs accountants to identigy all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during the same period.

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Revenue Principle

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Basis for recording revenues. Telss accountants when to record revenue and the amt of revenue to record

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Time-period concept

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Ensures that accting info is reported at regular intervals.

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Accrual Accting

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Accting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash

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Cash basis accting

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Records only transactions in which cash is received or paid.

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Chart of Accts

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\list of all a company's accts and their acct numbers

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Trial Balance

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List of all the ledger accts w/ their balances

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Posting

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Copying amts from the journal to the ledger

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Ledger

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The book of accts and their balances

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Journal

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Chronological accting record of an entity's transactions

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Debit

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Left side of an acct

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Credit

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Right side of an acct

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Accrued Liability

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A liability for an expense that has not yet been paid by the company. Also called accrued expense.

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Prepaid Expense

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A category of misc assets that typically expire or get used up in the near future: ex prepaid rent, prepaid ins and supplies

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Cash

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Money and any medium of exchange that a bank accepts at face value

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Acct

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Record of changes that have occurred in a particular asset, liability or stockholders equity during a period. The basic summary device of accting

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Transaction

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Any event that has a financial impact on the business and can be measured reliably

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Statement of Cash Flows

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Reports cash receipts and cash payments classified according to the entity's major activities\; operating investing and financing

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Accounting Equation

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Assets - Liab = Owner's Equity

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Financing Activities

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Activities that obtain from investors and creditors the cash needed to launch and sustain the buiness. A section of the statement of cash flows.

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Investment Activities

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Activities that increase or derease the long term assets available to the business. A section of the statement of cash flows

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Operating Activities

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Activities that create revenue or expense in the entity's major line of businesss; a section of the statement of cash flows. \operating activities affect the income statement.

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Current liability

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A debt due to be paid w/in one year or w/in the entity's operating cycle if cycle longer than year

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Current asset

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An asset that is expected to be converted to cash, sold or consumed during the next 12 mos or w/in the businesses normal operating cycle if longer than a year.

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Balance Sheet

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List of an entity's assets, liabilities, and owner's equity as as of a specific date. Also called the statement of Financial Position.

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Statement of Retained Earnings

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Summary of the changes in the retained earnings of a corporation during a specific period

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Income Statement

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A financial statement listing an entities revenues, expenses, and net income or net loss for a specific period. Also called Statement of Operations.

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Net loss

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Excess of total expenses over total revenues

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Dividends

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Distributions, usually cash by a corporation to its stockholders.

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Accts Payable

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Liability backed by the general reputation and credit standing of the debtor

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Note Payable

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A liab evidenced by a written promise to make a future pymt

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Long term debt

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a liab that falls due after a years time

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Stockholder's equity

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Stockholder's ownership interest in the assets of a corp.

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Paid in Capital

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The amt of stockholder's equity that stockholders have contributed to the corporation. Also called contributed capital

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Common stock

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Most basic form of capital stock

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Retained Earnings

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The amt of stockholders' equity that the corp has earned through profitable operation and has not given back to stockholders

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Revenue

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Increase in retained earnings from delivering goods or services to customers or clients

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Expense

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Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues.

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Net Income

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Excess of total revenues over total expenses. Also called net earning or net profit.

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Property, plant and equipment

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Long lived assets. Also called plant assets or fixed assets.

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Accounting Equation

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Assets = Liab + owners equity

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Asset

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An economic resourse that is expected to be a benefit in the future

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Liab

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An economic obligation (debt) payable to an indiv or org outside the company.

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Owner's equity

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Claim of the owners of a business to the assets of the business. Also called capital, stockholder's equity or net assets.

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Capital

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Another name for Owner's equity.

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Cost principle

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States that assets and services should be recorded at actual costs

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Going concern concept

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An entity will remain in ops for foreseeable futur5e

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Stable monetary unit concept

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Basis for ignoring the effect of inflation in accting records, based on assumption that buying pwr will remain stable.

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Reliability principle

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Ensures that accting records and statements are based on most reliable data avail. Also called objectivity principle.

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Entity

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An organization or section of an organization that for accting purposes stands apart from other organizations and individuals as a separate economic unit

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GAAP (Gen accepted Acct proce)

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Accting guidelines fromulated by the fin accting standards board.

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Board of Directors

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Group elected by the stockholders to set policy for a corporation and to appt its officers

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Accting

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Measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers.

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Basic Financial Statements

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Income Statement (Statement of Operations)
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows

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Accrual accounting

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Impact of a transaciton is recognized as it occurs. Both cash transactions (collected from customers and pymt of salaries) and noncash transaction (purchase of supplies on acct, providing service on acct) are recorded.

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Accrual Accting based on 3 concepts:

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Time period Concept
Revenue principle
Matching Principle

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Adjusting Accounts falls into 2 categories

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Deferrals: Adjustment of assets and liab for which cash is paid or received in advance. (ex. Prepaid expense, depreciation, unearned revenues)

Accruals: Adjustments of asset and liab for which an expense or revenue is recorded before pymt or receipt of cash (Ex: Accrued expenses, accrued revenues)

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Order of preparation

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Adjusted entries have been journalized and posted. Then from the adjusted trial bal, create the income statement then statement of retained earnings then balance sheet.

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How to close the books

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Reduce the balances of temporary accounts (revenue, expense, dividend accts) to 0. The are closed into retained earnings (each revenue acct is debited and retained earnings credited. Each expense acct is credited and retained earnings debited; dividends are credited and retained earnings is debited.

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Classified Balance sheet segmentation

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Current Assets
Long term assets,
Current liab
Long Term Liab
Owner's equity.
Can be in report or acct format.

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Statement of Cash Flows

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Shows receipts and cash pymts for the period.
Purpose is to:
Predict future cash flows
Evaluate mgt decisions
Determine ability to make pymts
Show the relationship of net income to cash flow.

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Statement of Cash flows
"Cash" includes

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Cash on hand & in vaults
Cash in banks
Cash equivalents - highly liquid investments such as money mkt instr & t-bills

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Cash flows on the statement are classified as:

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From Operating activities - relating to transactions that determine net income.
From Investing activities - Relate to long term assets.
From Financing activities- Involve obtaining funds from investors and creditors and paying dividends.