Accounting Exam 2

Front 1

Accounting cycle

Back 1

Process by which companies produce their financial statements for a specific period

Front 2

closing the accounts

Back 2

step in the accounting cycle at the end of the period. Closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and withdrawal accounts to zero for the next period.

Front 3

Closing entries

Back 3

entries that transfer the revenue, expense, and owner withdrawal balances to the capital account.

Front 4

Current asset

Back 4

an asset that is expected to be converted to cash, cold, or consumed dring the next 12 months, or within the business's normal operating cycle if the cycle is longer than a year.

Front 5

Current liability

Back 5

a debt due to be paid with cash or with goods and services within one year or within the entity's operating cycle if the cycle is longer than a year.

Front 6

Current ratio

Back 6

Current assets divided by current liabilities. Measures the comapny's ability to pay current liabilities from current assets.

Front 7

Debt ratio

Back 7

Ratio of total liabilities to total assets. Tells the proportion of a company's assets that it has financed with debt.

Front 8

Fixed asset

Back 8

another name for property, plant, and equipment

Front 9

income summary

Back 9

a temporary "holding tank" account into which the revenues and expenses are transferred prior to their final transfer to teh capital account.

Front 10

Liquidity

Back 10

measure of how quickly an item can be converted to cash

Front 11

long term asset

Back 11

an asset other than a current asset

Front 12

long term liability

Back 12

a liability other than a current liability

Front 13

operating cycle

Back 13

time span during which cash is paid for goods and services, whcih are then sold to customers from whom the business collects cash.

Front 14

Permanent accounts

Back 14

accounts that are not closed at the end of the period--teh asset, liability, and capital accounts/

Front 15

Plant asset

Back 15

another name ofor property plant and equipment

Front 16

postclosing trial balance

Back 16

list of the accounts and their balances at the endo fo the period after journalizing and posting the closing entries. This last step of the accounting cycle ensures that the ledger is in balance to start the next accounting period

Front 17

reversing entries

Back 17

special journal entries that ease the burden of accounting for transactions in the next period

Front 18

temporary accounts

Back 18

the revenue and expense accounts that relate to a particular accounting period and are closed at the end of the period. For a proprietorship, the woner withdrawal account is also temporary.

Front 19

work sheet

Back 19

a columnar document designed to help move data from the trial balance to their financial statements.

Front 20

COGS

Back 20

The cost of the inventory that the business has sold to customers. Also cold cost of sales

Front 21

Cost of sales

Back 21

the cost of the inventory that the business has sold to customers. Also called cost of goods sold

Front 22

Gross margin

Back 22

Excess of net ssales revenue over cost of goods sold

Front 23

Gross margin percentage

Back 23

Gross profit divided by net sales revenue. A measure of profitability. Also called gross margin percentage.

Front 24

Gross Profit

Back 24

Excess of net ssales revenue over cost of goods sold

Front 25

Gross Profit percentage

Back 25

Gross profit divided by net sales revenue. A measure of profitability. Also called gross margin percetage.

Front 26

Income from Operations

Back 26

Gross profit minus operating expenses plus any other operating revenues. Also called operating invome

Front 27

Inventory

Back 27

All the goods that the company owns and expects to sell in the normal course of operations Asset on the balance sheet

Front 28

Inventory turnover

Back 28

ratio of cost of goods sold to average inventory. Measures the number of times a company sells its average level of inventory during a year

Front 29

Invoice

Back 29

A seller's request for cash from the purchaser

Front 30

Multi step income statement

Back 30

Format that contains subtotals to highlight signifcant relationships. IN addition to net income, it reports gross profit and operating income

Front 31

Net purchases

Back 31

Purchases less purchase discounts and purchase returns and allowances.

Front 32

Net sales Revenue

Back 32

Sales revenue less sales discounts and sales returns and allowances

Front 33

Operating expenses

Back 33

expenses, other than cost of goos sold, that are incurred in the entity's major line of business. Examples include rent, depreciation, salaries, wages, utilities, and supplies expense.

Front 34

Operating income

Back 34

Gross profit minus operating expenses plus any other operating revenues. Also called income from operations

Front 35

other expense

Back 35

expense that is outside the main operations of a business, such as a loss on the sale of plant assets.

Front 36

Other Revenue

Back 36

Revenue that is outside the main operations of a business, sucah as gain on the sale of plant assets

Front 37

Periodic inventory system

Back 37

A system in wich the business does not keep a continuous record of inventory on hand. At the end of the period, it makes a physical count of on hand inventory and uses this information to prepare the financial statements.

Front 38

Perpetual inventory system

Back 38

The accounting inventory system in which the business keeps a running record of inventory and cost of goods sold.

Front 39

Sales

Back 39

The amount that a merchandiser earns from selling its inventory

Front 40

Sales discount

Back 40

Reduction in the amount receivable from a customer, offereed byu the seller as an incentive for the customer to pay promptly. A contra account to sales Revenue

Front 41

Sales returns and allowances

Back 41

decreases in the seller's receivable from a customer's return of merchandise or from granting the customer an allowance from the amount owed to the seller., A contra account to sales revenue

Front 42

Sales revenue

Back 42

the amount that a merchandiser earns from selling its inventory

Front 43

Single step income statement

Back 43

format that groups all revenues together and then lists and deducts all expenses together without drawing any subtotals

Front 44

Average cost method

Back 44

Inventory costing method based on the average cost of inventory during the period. Average cost is determined by dividing the cost of goods available for sale by the number of units available.

Front 45

Conservatism

Back 45

reporting the least favorable figure in the financial statement

Front 46

Consistency principle

Back 46

a business should use the same accounting methods and procedures from period to period

Front 47

disclosure principle

Back 47

a business's financial statements must report enough informatio for outsiders to make knowledgeable decisions about the company/

Front 48

First in first out FIFO inventory cost method

Back 48

The first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases.

Front 49

Gross Profit method

Back 49

a way to estimate inventory on the basis of the cost of goods sold model: beginning inventory+net purchases= cost of goods available for sale. Cost of goods available for sale- cost of goods sold = ending inventory

Front 50

Last in First out LIFO Inventory costing method

Back 50

The last costs into inventory are the first costs out to cost of goods sold. Leaves the oldest costs--those of beginning inventory and the earliset purchase of the period--in ending inventory

Front 51

Lower of cost or market LCM Rule

Back 51

Rule that an asset should be reported in the financial statements at whichever is lower--its historical cost or its market value.

Front 52

Specific identification method

Back 52

Inventory costing method based on the specific cost of particular units of goods of inventory

Front 53

Specific unit cost method

Back 53

Inventory costing method based on the specific cost of particular units of goods of inventory

Front 54

Materiality concept

Back 54

A company must perform strictly proper accounting only for items that are significant to the business's financial situations