Accounting Chapter 4

Front 1

Classified balance sheet

Back 1

A balance sheet that places each asset, and each liability into a specific category.

Front 2

Liquidity

Back 2

A measure of how quickly an item can be converted to cash

Front 3

Current assets

Back 3

An asset that is expected to be converted to cash or used up within the business' normal operating cycle if the cycle is longer than a year.

Front 4

What are some examples of current assets?

Back 4

Cash, Accounts Receivable, Office supplies, prepaid expenses.

Front 5

What is the operating cycle?

Back 5

It is the time span when cash is used to acquire goods and services, when these goods and services are sold to customers, and when the business collects cash from customers.

Front 6

What are long-term assets?

Back 6

All the assets that will not be converted to cash or used up within the businesses' operating cycle or one year.

Front 7

What are property, plant, and equipment assets?

Back 7

A long-term asset that is also known as fixed assets or plant assets.

Front 8

What are some examples of property, plant, and equipment assets?

Back 8

Land, buildings, furniture, and equipment.

Front 9

What is the order of presentation for property, plant, and equipment assets?

Back 9

Land, buildings, equipment, furniture, and then other assets.

Front 10

What are intangible assets?

Back 10

Assets with no physical form, such as patents, copyrights, and trademarks. They are long-term.

Front 11

What are current liabilities?

Back 11

They are Liabilities that must be paid with cash or with goods and services within one year or within the entity's operating cycle.

Front 12

What are some examples of current liabilities?

Back 12

Accounts Payable, notes payable due within one year, salaries payable, interest payable, and unearned revenue. Any portion of a long-term liability that is due within the next year is also reported at a current liability.

Front 13

How are current Liabilities listed?

Back 13

They are listed in the order that they are due.

Front 14

What are long-term Liabilities?

Back 14

Liabilities that do not need to be paid within one year or within the entity's operating cycle, whichever is longer

Front 15

What are examples of long-term Liabilities?

Back 15

Notes Payable such as a mortgage on a building.

Front 16

What is a temporary account?

Back 16

An account that relates to a particular accounting period and is closed at the end of that period. It is also known as a nominal account.

Front 17

What are some examples of temporary accounts?

Back 17

Revenues, expenses, Income Summary, and Owner, Withdrawal.

Front 18

What is a permanent account?

Back 18

An account that is not closed at the end of the period. It is also known as a real account.

Front 19

What are examples of a permanent account?

Back 19

Assets, Liabilities, and Owner, Capital.

Front 20

What are closing entries?

Back 20

Entries that transfer the revenues, expenses, and Owner, Withdrawal balances to the Owner, Capital account to prepare the company's books for the next period.

Front 21

What is Income Summary?

Back 21

A temporary account into which revenues and expenses are transferred prior to their final transfer into the Owner, Capital account. It summarizes net income or net loss for the period.

Front 22

What is the first step of closing accounts?

Back 22

Debit revenues and credit Income Summary.

Front 23

What is the second step to closing an account?

Back 23

Debit Income Summary and credit all expenses.

Front 24

What is the third step to closing an account?

Back 24

Calculate the Income Summary by subtracting the expenses from the second closing entry from the revenues from the first closing entry. If there is net income debit Income Summary and credit Owner, Capital. If there is net loss debit Owner, Capital and credit Income Summary.

Front 25

What is the fourth step in closing an account?

Back 25

Debit Owner, Capital for the amount of owner withdrawals and credit Owner, Withdrawals from that account.

Front 26

What is a post-closing trial balance?

Back 26

A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries. It should only include permanent accounts, such as assets, Liabilities, and the Owner, Capital accounts.

Front 27

What is the accounting cycle?

Back 27

The process by which companies produce their financial statements for a specific period. It is the stops that are followed throughout the time period.

Front 28

What is the current ratio?

Back 28

It measures a company's ability to pay its current Liabilities with its current assets. It is: current ratio = total current assets/total current Liabilities.

Front 29

Would a company prefer to have a high or low current ratio?

Back 29

They would prefer to have a high current ratio because that means it has plenty of current assets to pay its current Liabilities.

Front 30

What are reversing entries?

Back 30

They are special journal entries that ease the burden of accounting for transactions in a later period. They are the exact opposite of certain adjusting entries.

Front 31

What type of adjustments are used in conjunction with reversal entries?

Back 31

Accrual-type entries, such as accrued salaries expense or accrued service revenue.

Front 32

What is the going concern assumption?

Back 32

The assumption that going concern will continue indefinitely unless you know otherwise. It is not applied to companies about to file for bankrupty.

Front 33

What is the matching rule?

Back 33

The rule that matches expenses to revenues in a period where revenue is earned. It is to help measure a company's performance.

Front 34

When moving from a fiscal year, do you keep the original paper on the same account?

Back 34

No, because it is a new year, so you refresh except for book keeping. You refresh because you don't want to show previous years if you don't have to; don't want people to see your records