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92 Cards in this Set

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Debt Ratio
Ratio of total liabilities to total assets. States the proportion of a company's assets that is financed w/ debt
Current Ratio
Crrent assets divided by current liabilities.
Measures a companies ability to pay current liabilities w/ current assets
Multi-step Income Statement
Income Statement that contains subtotals to highlight important relationships between revenues and expenses
Report Format
Balance sheet format that lists assets at the top followed by liabilities and stockholder's equity below
Account format
A balance sheet format that lists assets on the left and liabilities and stockholder's equity on the right
Single-step income statement
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
Classified Balance Sheet
A BS that shows current assets separate from long term assets and current liabilities separate from long term liabilities
Long Term Liability
A liability that is not a current liability
Current Liability
A debt due to be paid within on year or within the entity's operating cycle if the cycle is longer than a year.
Long Term Asset
An asset that is not a current asset
Operating Cycle
Time span during which cash is paid for goods and services that are sold to customers who pay the business in chash
Current Asset
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.
Liquidity
Measure of how quickly an item can be converted to cash
Permanent Account
Asset, liability and stockholder's equity accounts that are not closed at the end of the period
Temporary Acct
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
Closing entries
Entries that transfer the revenue, expense and dividends balances from these respective accounts to the Retained Earnings account
Closing the Books
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.
Adjusted trial balance
A list of all the ledger accts with their adjusted balances
Unearned Revenue
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.
Accrued Revenue
A revenue that has been earned but not yet received in cash
Accrued Expense
An expense incurred but not yet paid in cash
Book value (of a plain asset)
The assets cost minus accumulated depreciation
Contra Account
An account that always has a companion acct and whose normal balance is opposite of the companion acct
Accumulated Depreciation
The cumulative sum of all depreciation expense from the date of acquiring a plant asset
Plant Assets
Long lived assets, such as land, building and equip used in the ops of a business. Also called fixed assets
Prepaid Expense
Category of misc assets that typically expire or get used up in the near future. Ex: prepaid rent, prepaid ins, supplies
Accrual
An expense or revenue that occurs before the business pays or receives cash. Opposite of deferral.
Depreciation
Expense assoc w/ spreading the cose of a plant asset over its useful life.
Deferral
An adjustment for which the business paid or received cash in advance. Ex\; prepaid rent, prepaid ins and supplies.
Matching principle
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.
Revenue Principle
Basis for recording revenues. Telss accountants when to record revenue and the amt of revenue to record
Time-period concept
Ensures that accting info is reported at regular intervals.
Accrual Accting
Accting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash
Cash basis accting
Records only transactions in which cash is received or paid.
Chart of Accts
\list of all a company's accts and their acct numbers
Trial Balance
List of all the ledger accts w/ their balances
Posting
Copying amts from the journal to the ledger
Ledger
The book of accts and their balances
Journal
Chronological accting record of an entity's transactions
Debit
Left side of an acct
Credit
Right side of an acct
Accrued Liability
A liability for an expense that has not yet been paid by the company. Also called accrued expense.
Prepaid Expense
A category of misc assets that typically expire or get used up in the near future: ex prepaid rent, prepaid ins and supplies
Cash
Money and any medium of exchange that a bank accepts at face value
Acct
Record of changes that have occurred in a particular asset, liability or stockholders equity during a period. The basic summary device of accting
Transaction
Any event that has a financial impact on the business and can be measured reliably
Statement of Cash Flows
Reports cash receipts and cash payments classified according to the entity's major activities\; operating investing and financing
Accounting Equation
Assets - Liab = Owner's Equity
Financing Activities
Activities that obtain from investors and creditors the cash needed to launch and sustain the buiness. A section of the statement of cash flows.
Investment Activities
Activities that increase or derease the long term assets available to the business. A section of the statement of cash flows
Operating Activities
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.
Current liability
A debt due to be paid w/in one year or w/in the entity's operating cycle if cycle longer than year
Current asset
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.
Balance Sheet
List of an entity's assets, liabilities, and owner's equity as as of a specific date. Also called the statement of Financial Position.
Statement of Retained Earnings
Summary of the changes in the retained earnings of a corporation during a specific period
Income Statement
A financial statement listing an entities revenues, expenses, and net income or net loss for a specific period. Also called Statement of Operations.
Net loss
Excess of total expenses over total revenues
Dividends
Distributions, usually cash by a corporation to its stockholders.
Accts Payable
Liability backed by the general reputation and credit standing of the debtor
Note Payable
A liab evidenced by a written promise to make a future pymt
Long term debt
a liab that falls due after a years time
Stockholder's equity
Stockholder's ownership interest in the assets of a corp.
Paid in Capital
The amt of stockholder's equity that stockholders have contributed to the corporation. Also called contributed capital
Common stock
Most basic form of capital stock
Retained Earnings
The amt of stockholders' equity that the corp has earned through profitable operation and has not given back to stockholders
Revenue
Increase in retained earnings from delivering goods or services to customers or clients
Expense
Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues.
Net Income
Excess of total revenues over total expenses. Also called net earning or net profit.
Property, plant and equipment
Long lived assets. Also called plant assets or fixed assets.
Accounting Equation
Assets = Liab + owners equity
Asset
An economic resourse that is expected to be a benefit in the future
Liab
An economic obligation (debt) payable to an indiv or org outside the company.
Owner's equity
Claim of the owners of a business to the assets of the business. Also called capital, stockholder's equity or net assets.
Capital
Another name for Owner's equity.
Cost principle
States that assets and services should be recorded at actual costs
Going concern concept
An entity will remain in ops for foreseeable futur5e
Stable monetary unit concept
Basis for ignoring the effect of inflation in accting records, based on assumption that buying pwr will remain stable.
Reliability principle
Ensures that accting records and statements are based on most reliable data avail. Also called objectivity principle.
Entity
An organization or section of an organization that for accting purposes stands apart from other organizations and individuals as a separate economic unit
GAAP (Gen accepted Acct proce)
Accting guidelines fromulated by the fin accting standards board.
Board of Directors
Group elected by the stockholders to set policy for a corporation and to appt its officers
Accting
Measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers.
Basic Financial Statements
Income Statement (Statement of Operations)
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
Accrual accounting
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.
Accrual Accting based on 3 concepts:
Time period Concept
Revenue principle
Matching Principle
Adjusting Accounts falls into 2 categories
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)
Order of preparation
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.
How to close the books
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.
Classified Balance sheet segmentation
Current Assets
Long term assets,
Current liab
Long Term Liab
Owner's equity.
Can be in report or acct format.
Statement of Cash Flows
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.
Statement of Cash flows
"Cash" includes
Cash on hand & in vaults
Cash in banks
Cash equivalents - highly liquid investments such as money mkt instr & t-bills
Cash flows on the statement are classified as:
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.