Accounting Chapter 2

Front 1

Accounts Payable

Back 1

Amounts owed to suppliers for purchases made on credit (on account)

(Liability)

Front 2

Accounts Receivable

Back 2

Amounts owed by customers who purchased products or services on credit (on account)

(Asset)

Front 3

Bank Indebtedness

Back 3

A short-term loan up to a maximum amount pre-arranged with a bank to cover cash shortfalls

Front 4

Comparability

Back 4

An enhancing qualitative characteristics of useful information that enables users to identify and understand similarities in, and differences among, items

Front 5

Conceptual Framework

Back 5

a coherent system of interrelated elements that guides decisions about what to present in financial statements, alternative ways of reporting economic events and appropriate ways of communicating this information

Front 6

Contra Asset Account

Back 6

An Account that is offset against (reduces) an asset account on the statement of financial position

Front 7

Cost Basis of Accounting

Back 7

A basis of measurement that states that assets and liabilities should be recorded and reported at their cost at the time of acquisition, as well as furing the time the asset is held

Front 8

Cost Constraint

Back 8

The constraint that the costs of obtaining and providing information should not be higher than the benefits that are gained by providing it

Front 9

Current Assets

Back 9

Cash and other resources that it is reasonable to expect will be converted into cash, or will be sold or used up within one year of the company's financial statement date or its operating cycle, whichever is longer

Front 10

Current Liabilities

Back 10

Obligations that will be paid or settled within one year of the company's financial statement date or its operating cycle, whichever is longer

Front 11

Current Maturities of Long-Term Debt

Back 11

the portion of a non-current or long-term loan that is repayable in the current year

Front 12

Current Ratio

Back 12

A measure of liquidity used to evaluate a company's' short-term dept-paying ability. It is calculated by dividing current assets by current liabilities

Front 13

Debt to Total Assets

Back 13

A measure of solvency showing the percentage of total financing that is provided by lenders and other creditors. It is calculated by dividing total liabilities by total assets

Front 14

Earnings Per Share (EPS)

Back 14

A measure of profitability showing the profit earned by each common share. It is calculated by dividing profit available to common shareholders by the weighted average number of common shares

Front 15

Elements of Financial Statements

Back 15

A set of definitions of basic terms in accounting, such as asset, liabilities, equity, revenues and expenses

Front 16

Fair Value Basis Of Accounting

Back 16

A basis of measurement that states that assets should be reported at their fair value (price to sell)

Front 17

Faithful Representation

Back 17

A fundamental qualitative characteristic describing information that represents economic reality. It must be complete, neutral, and free from material error

Front 18

Going Concern Consumption

Back 18

The assumption that the business will remain in operation for the foreseeable future

Front 19

Intangible Assets

Back 19

Assets of a long-lived nature that do not have physical substance but represents a privilege or a right granted to, or held by, a company

Front 20

Liquidity Rations

Back 20

Measures of a company's short-term ability to pay its maturing obligations (usually current liabilities) and to meet unexpected needs for cash

Front 21

Long-Term Investments

Back 21

(also known as investments) Investments in debt securities intended to be held for many years to earn interest, and (2) equity securities of other companies held to generate investment revenue or held for strategic reasons

Front 22

Merchandise Inventory

Back 22

(also known as inventory) Goods held for sale to customers

(Asset)

Front 23

Non-Current Assets

Back 23

(also known as long-term assets) Assets that are not expected to be converted into cash, sold, or used up by the business within one year of the statement date or its operating cycle

Front 24

Non-Current Liabilities

Back 24

(also known as long-term liabilities) Obligations that are not expected to be paid or settled within one year or the company's operating cycle

Front 25

Notes Payable

Back 25

(also known as loans payable) Amounts owed to suppliers, banks, or others that are supported by a written promise to repay.

(Liability)

Front 26

Notes Receivable

Back 26

(also known as loans receivable) Amounts owed by customers or others that are supported by written promise to repay.

(Asset)

Front 27

Objective of Financial Reporting

Back 27

The provision of information about a company's financial position, performance, and changes in financial position that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the company

Front 28

Operating Cycle

Back 28

Average period of time it takes for a business to pay cash to obtain products or services and then receive cash from customers for these products or services. This can be one year or longer, depending on the type of business

Front 29

Prepaid Expenses

Back 29

Costs paid in advance of use

(Asset)
E.g. Rent and Insurance

Front 30

Price Earnings (P-E) Ratio

Back 30

A profitability measure of the ratio of the market price of each common share to the earnings per share. It reflects investors' beliefs about a company's future profit potential

Front 31

Profitability Ratios

Back 31

Measures of a company's operating success for a specific period of time

Front 32

Property, Plant and Equipment

Back 32

Tangible assets of a long-lived nature that are being used to operate the business

Front 33

Relevance

Back 33

A fundamental qualitative characteristic describing information that makes a difference in a decision. It should have predictive value, or both, and be material.

Front 34

Solvency Ratios

Back 34

Measures of a company's ability to survive over a long period of time by having enough assets to settle its liabilities as they fall due

Front 35

Supplies

Back 35

Consumable items used in running a business (Asset)

E.g. Office supplies and cleaning supplies

Front 36

Timeliness

Back 36

An enhancing qualitative characteristics of useful information that means that information is available to decision-makers in time to be capable of influencing their decisions

Front 37

Trading Investments

Back 37

Investments in debt securities or equity securities of other companies that are brought with the intention of selling them after a short period of time in order to earn a profit from their price fluctuations

Front 38

Understandability

Back 38

An enhancing qualitative characteristics of useful information that means that information is clearly and concisely classified, characterized and presented

Front 39

Unearned Revenue

Back 39

Cash received when a customer pays in advance of being provided with a service or product (Liability)

Front 40

Verifiability

Back 40

An enhancing qualitative characteristic of useful information that means that different knowledgeable and independent users could reach consensus, although not necessarily complete agreement, that the information is a faithful representation

Front 41

Working Capital

Back 41

A measure of liquidity used to evaluate a company's short-term debt-paying ability. It is calculated by subtracting current liabilities from current assets