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147 Cards in this Set

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Accounting
Identifying, measuring, communicating Econ. info to inform judgement and decisions
Asset
Econ. Resource that is measurable, results from a prior transaction, and provide future Econ. benefit
Balance Sheet
Financial Statement that reports a company's assets, liabilities, and equity at a point in time
Comparability
Use accounting info to compare and contrast the financial activities of different companies
Conceptual Framework of Accounting
Collection of concepts that guide the manner in which accounting is practiced
Conservatism
Manner in which accountants deal with uncertainty regarding economic situations
Consistency
The ability to use accounting info to compare and contrast the financial activities of the same entity over time
Contributed Capital
Resource that investors contribute to a business in exchange for ownership interest
Cost Principle
Principle that assets should be recorded and reported at the cost paid to acquire them
Dividends
Profits that are distributed to owners
Economic Entity Assumption
Accountants assume that the financial activities of a business can be separated from the financial activities of the business's owners
Equity
Difference between a company's assets and liabilities, representing the share of assets that is claimed by the company's owners
Expense
a decrease in resources resulting from the sale of goods or provision of services
Going Concern Assump.
Accountants assume that a company will continue to operate into the foreseeable future
Income Statement
A financial statement that reports a company's revenues and expenses over a specific period of time
Liability
An obligation of a business that results from a past transaction and will require the sacrifice of economic resources at some future date
Matching Principle
The Principle that expenses should be recorded in the period resources are used to generate revenue
Materiality
The threshold at which a financial item begins to affect decision making
Monetary Unit Assump.
Accountants assume that the dollar is the most effective means to communicate economic activity
Relevance
the capacity of a accounting info to make a difference in decisions
Reliability
the extent to which accounting information can be depended upon to represent what it purports to represent, both in description and in number
Retained Earnings
Profits that are retained in the business
Revenue Recognition Principle
The principle that a revenue should be recorded when a resource has been earned
Statement of Cash Flow
A financial statement that reports a company's sources ad uses of cash over a specific period of time
Statement of Retained Earning
financial statement that reports that change in a company's retained earnings over a specific period of time
Time Period Assumption
accountants assume that economic info. can be meaningfully captured and communicated over short periods of time
Understandability
ability of accounting info. to be understandable to those who understand/willing to understand business
Classified Balance Sheet
a type of balance sheet that groups together accounts of similar nature and reports them in a few major classifications
Common-Size Financial Statement
a statement in which all accounts have been standardized by the overall size of the company
Contributed Capital
the amount of equity a company generates through the sale of stock to investors
Corporation
sperate legal entity that is established by filing articles of incorporations in a state
Cost of Sales
the cost of the inventory sold during a period
Current Asset
any asset that is reasonably expected to be converted to cash or consumed within one year of the balance sheet date
Current Liability
an obligation that is reasonably expected to be satisfied within 1 year
Fixed Asset
tangible resources that are used in a company's operations for more than 1 year and are not intended for resale
Generally Accepted Accounting Principle
the accounting standards, rules, principles, and procedures that comprise authoritative practice for financial accounting
Gross Profit
profit that a company generates when considering only the sales price and the cost of the product sold
Horizontal Analysis
method of analyzing a company's account balance over time by calculating absolute and percentage changes in each account
income before tax
profit that a company generates when considering all revenues and expenses excerpt for income taxes
intangible asset
resource that is used in operations for more than 1 year in not intended for resale, and has no physical substance
Long term investment
investments in the common stock or debt of another entity that will not be sold within a year
Long term liability
obligation that is not expected to be satisfied within 1 year
Multi step income statement
calculates income by grouping certain revenues and expenses together and calculating several subtotals of income
Net Income
the final income measure after the provision for income taxes is subtracted from income before taxes
Notes to the Financial Statement
the additional textual and numerical info immediately following the financial statement
operating expense
recurring expenses that a company incurs during normal operations
operating profit
profit that a company generates when considering both the cost of the inventory and the normal expenses incurred to operate the business
Other revenue and expenses
revenues and expenses generated outside of normal operations
partnership
a business that is formed when 2 or more proprietors join together to own a business
provision of income taxes
the amount of income tax expense for a given period
public corporation
a separate legal entity in which ownership is available to the public at large
retained earnings
the amount of equity a company generates by being profitable and retaining those profits in the business
sales revenue
the resources that a company generates during a period from selling its inventory
single step income statement
calculates total rev. and total exp. and than determines net income in one step
sole proprietorship
a business owned by 1 person
statement of stockholders equity
financial statement that shows how and why each equity account in the company's balance sheet changed from one year to the next
vertical analysis
method of comparing a company's account balances within 1 year by dividing each account balance by a base amount to yield a percentage
account
an accounting record that accumulates the activity of a specific item and yields the item's balance
accounting info system
the system that identifies records summarizes and communicates the various transactions of a company
chart of account
the list of accounts that a company uses to capture its business activites
accounting transaction
any economic event that affects a company's asset, liabilities, or equity at the time of the event
credit
ride side of an account
debit
left side of the account
dual nature of accounting
every accounting transaction affect at least 2 accounts
journal
a chronological record of transactions
ledger
a collection of accounts and their balances
trial balance
a listing of accounts and their balances at a specific point in time
accounting cycle
the sequence of steps in which an accounting info system captures processes and reports a company's accounting transactions during a period
accrual basis of accounting
records revenues when they are earned and records expenses when they are incurred
adjusting journal entries
entries made in the general journal to record revenues that have been earned but not recorded and expenses that have been incurred but not yet recorded
cash basis of accounting
records revenues when cash is received and records expenses when cash is paid
closing entries
entires made in the journal and posted in the ledger that eliminate the balances in all temporary accounts and transfer those balances to the Retained Earnings Acct.
closing process
the process of transferring all revenue expense and dividend acct. balances to the Retained Earning Acct.
Temporary Acct.
accounts that accumulate balances only for the current period
bank reconciliation
process of reconciling the differences between the cash balance on a bank statement and the cash balance in a company's records
cash
medium of exchange
cash equivalent
any investment that is readily convertible into cash and has an original maturity of 3 months or less
control activities
the policies and procedures established the address the risks that threaten the achievement of organizational objective
control environment
atmosphere in which the members of an organization conduct their activities and carry out their respon.
credit memorandum
an addition to the cash balance on the bank statement for items such as the collection of interest
debit memorandum
a subtraction from the cash balance on the bank statement for items such as service charge
deposit in transit
a deposit that has been made by the company but has not cleared the bank as of the statement date
free cash flow
excess cash a company generates beyond what it needs to invest in productive capacity and pay dividends to stockholders
info and communication
required for the open flow of relevant info. throughout an organization
internal control
system of policies and procedures used in a company to promote efficient and effective operations reliable financial reporting and compliance with laws and regulations
internal control report
annual report in which management states its responsibility for internal control and provides an assessment of its internal control
monitoring
the assessment of the quality of an organizations internal control
outstanding check
a check that has been distributed by the company but has not cleared the bank as of the statement date
petty cash fund
an amount of cash kept on hand to pay for minor expenditures
restricted cash
cash a company has restricted for a specific purpose
risk assessment
the identification and analysis of the risks that threaten the achievement of organizational objectives
accts. receivable
an amount owed by a costumer who has purchased the company's product or service
aging schedule
a listing of accounts receivable by their ages
allowance for bad debts
the dollar amount of receivables that a company believes will ultimately be uncollectible
allowance method
method in which companies use 2 entries to account for bad debt expense 1 to estimate the expense and a second to write of receivables
allowance ratio
a comparison of the allowance account to receivables that measures the percentage of receivables that are expected to be uncollectible in the future
bad debt expense
the expense resulting from the inability to collect accts. receivable
days-in receivable ratio
a conversion of the receivables turnover ratio that expresses a company's ability to generate and collect receivables in days
direct write-off method
method in which bad debt expense is recorded when a company determines that a receivable is uncollectible and removes it from its records
net realizable method
the amount of cash that a company expects to collect from its total accts. receivable
notes receivable
as asset created when a company accepts a promissory note
percentages of receivables approach
method that estimates bad debt expense as a percentage of receivables
percentage of sales approach
method that estimates bad debt expense as a percentage of sales
promissory note
a written promise to pay a specific sum of money on demand or at some specific date in the future
receivables turnover ratio
a comparison of credit sales to receivables that measures a company's ability to generate and collect receivables
days in inventory ratio
converts the inventory ratio into a measure of days by dividing the turnover ration into 365 days
first in first out method (FIFO)
calculates the cost of goods sold based on the assumption that the first unit of inventory available for sale is the first unit sold
Gross profit method
a method of estimating inventory using a companys gross profit percentage to estimate the cost of goods sold and then ending inventory
inventory
a tangible resource that is held for resale in the normal course of operations
inventory turnover ratio
compares the cost of goods sold during a period to the average inventory balance during that period and measures the ability to sell inventory
Last in last out (LIFO)
calculates the cost of goods sold based on the assumption that the last unit of inventory available for sale is the first unit sold
LIFO reserve
the difference between the LIFO inventory reported on the balance sheet and what inventory would be if reported on a FIFO basis
Lower of cost market rule
requires inventory to be reported on the balance sheet at its market value if the market value is lower than the inventory's cost
moving average method
calculates the cost of goods sold based on the average unit cost of all inventory available for sale
net purchases
gross purchases plus transportations in less purchase returns and allowances and purchase discounts
periodic invent. system
updates the inventory account only at the end of an accounting period
perpetual invent. system
updates the inventory account each time inventory is bought or sold
purchases
an account used to accumulate the cost of all purchases
purchase discount
an account that accumulates the cost reductions generated from vendor discounts granted for prompt payments
purchase returns and allowances
an account that accumulates the cost of all inventory returned to vendors as well as the cost reductions from vendor allowances
specific identification method
determines the cost of goods sold based on the actual cost of each inventory item sold
tax deferral
a temporary delay in the payment of income tax
transportation in
an account that accumulates the transportation costs of obtaining the inventory
accumulated depreciation
the cumulative amount of depreciation expense recognized to date on a fixed asset
amortization
the process of spreading out the cost of an intangible asset over its useful life
average age of fixed assets
a comparison of accumulated depreciation to depreciation expense that estimates the number of years on average that the company has used its fixed assets
average useful life of fixed assets
a comparison of the cost of fixed assets to depreciation expense that estimates the number of years on average that a company excepts to use its fixed assets
capital expenditure
an expenditure that increase the expected useful life or productivity of a fixed asset
copyright
the right to reproduce or sell an artistic or published work
cost
the historical cost of a fixed asset being depreciated
depreciable cost
the difference between an asset's cost and its salvage value
depreciation
the process of systematically and rationally allocating the cost of a fixed asset over its useful life
depreciation expense
the portion of a fixed asset's cost that is recognized as an expense in the current period
depreciation method
the method used to calculate depreciation expense, such as the straight line method, the double declining method and the units of activity method
double declining method
a depreciation method that accelerates depreciation expense into the early years of an asset's life
fixed asset turnover ratio
a comparison of total revenues to the average net book value of fixed assets that measures the productivity of fixed assets
franchise
the right to operate a business under the trade name of the franchise
goodwill
an intangible asset eaqual to the excess that one company pays to acquire the net assets of another company
intangible asset
a resource that used in operations for more than 1 year but that has no physical substance
net book value
the unexpired cost of a fixed asset calculated by subtracting depreciation expense to date from the cost of the fixed asset
patent
the right to manufacture sell or use a particular product or process exclusively for a limited period of time
revenue expenditure
an expenditure that maintains the expected useful life or the productivity of a fixed asset
salvage value
an estimate of the value of a fixed asset at the end of its useful life
straight line method
a depreciation method that results in the same amount of depreiation expense each year of the assets useful life
trademark
the right to use exclusively a name a symbol or phrase to identify a company
units of activity method
a depreciation method in which depreciation expense is a function of the actual usage of the asset
useful life
the length of time a fixed asset is expected to be used in operations