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57 Cards in this Set
- Front
- Back
the statement of operations
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Income Statement
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shows changes in the retained earnings; shows what a company did with its net income
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Statement of Retained Earnings
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measures financial position; lists assets, liabilities, and stockholder's equity
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Balance Sheet
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reports cash coming in and going out; reports cash flow under 3 categories: (1) companies operate by selling goods and services, (2) companies invest in long-term assets, (3) companies need money for financing
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Statement of Cash Flow
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an information system that measures business activity, processes data into reports and communicates the results to people
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Accounting
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a financial examination performed by independent accountants
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Audit
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private organization that is responsible for formulating accounting standards
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Financial Accounting Standards Board
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provides information for people outside the firm. States that information must meet standards of relevance and reliability and is to be used for potential investors
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Financial Accounting
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generates inside information for managers, but doesn't have to meet external standards of reliability
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Management Accounting
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designed to meet the primary objective of financial reporting, which is to provide information useful for making investment and credit decisions
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GAAP
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states that each division of the company is a separate entity and the company as a whole constitutes an entity
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Entity Concept
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reports revenues at their actual sale value because that amount is supported by objective evidence. Account data should be neutral/unbiased and confirmed
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Reliability Principle
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accounts for expenses at their actual cost, not a hypothetical amount
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Cost Principle
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assumes that the entity will remain in operation long enough to use existing assets for their intended purposes
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Going-Concern Principle
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assumes the dollar is stable and constant and ignores the idea of inflation
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Stable-Monetary Unit Concept
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economic resources that are expected to produce a benefit in the future
i.e. cash, accounts receivable, notes receivable, inventory, prepaid expenses, land, buildings, equipment, furniture, fixtures |
assets
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debts that are payable to outsiders
i.e. accounts payable, notes payable, accrued liabilities |
Liabilities
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ownership within a company
i.e. common stock, retained earnings, dividends, revenues, expenses |
Stockholder's Equity
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when total revenues exceed total expenses
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Net Income
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debits increase/credits decrease:
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assets, dividends, and expenses
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debits decrease/credits increase:
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liabilities, equity, retained earnings, and revenue
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Any event that has a financial impact on the business and can be measured reliably. Provides objective information about the financial impact. Has two sides: you give something, you receive something
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Transaction
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the record of all the changes in a particular asset, liability and equity during a period; the basic summary device of accounting
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Account
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records the dual effect on the entity
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Double-Entry Accounting
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helps to summarize transactions; left side is the debit side and the right is the credit
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T-Account
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a chronological record of transactions; first step of a transaction; follows three steps: specialize each account affected, determine whether each account is increased or decreases, and record the transaction with a brief explanation
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Journal
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a grouping of all the T-accounts with their balances; "keeping the books"
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Ledger
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the process where data is copied to the ledger
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Posting
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lists all accounts with their balances; summarizes all the account balances for the financial statements and shows whether debits and credits equal
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Trial Balance
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lists all accounts and account numbers
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Chart of Accounts
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falls on the side of the account-debit or credit- where increases are recorded
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Normal Balance
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records the impact of a business transaction as it occurs; records the transaction even if it receives or pays no cash; required by GAAP
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Accrual accounting
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records ONLY cash transaction; treated as revenues and cash payments are handled as expenses
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Cash-basis Accounting
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ensures that accounting information is reported at regular intervals
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Time-period concept
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governs two things: when to record revenue and the amount to record; does NOT include future payments; records revenue after it has been earned
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Revenue Principle
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basis for recording expenses; identify all the expenses incurred during the accounting period and measures the expenses then matches them against the revenues earned
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Matching Principle
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affects one income statement account and one balance sheet account
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Adjusting Journal Entries
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an adjustment for an item that the business paid or received cash in advance
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Deferral
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the cost of a plant asset over its useful life
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Depreciation
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an expense or revenue that occurs before the business pays or receives cash; opposite of deferral
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Accrual
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long-lived tangible assets
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Plant Assets
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shows the sum of all depreciation expenses
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Accumulated Depreciation
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an asset account with a normal credit balance with two distinguishing characteristics: (1) always has a companion account, (2) its normal balance is opposite that of the companion account
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Contra Asset Account
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cost minus accumulated depreciation
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Asset's Book Value
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a liability that arises from an expense that has not yet been paid; increases liabilities and decreases stockholder's equity
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Accrued Expense
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a revenue that has been earned but not yet collected; increases both assets and stockholder's equity
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Accrued Revenue
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collects cash from customers before earning the revenue; only when the job is complete does the business earn the revenue; i.e. magazine publisher
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Unearned Revenue
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measures income AND updates the balance sheet
affects at least one: revenue/expense and assets/liabilities |
The Adjusting Process
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preparing the accounts for the next period's transactions; sets the revenues, expenses and dividends back to zero
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Closing the Books
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measures how quickly an item can be converted to cash
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Liquidity
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debts that must be paid within one year
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Current Liabilities
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lists the assets on top, followed by liabilities and stockholder's equity
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Report Format of a Balance Sheet
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lists assets on the left and the liabilities and stockholder's equity on the right
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Account Format of a Balance Sheet
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lists all the revenues together under one heading
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Single-Step Income Statement
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reports a number of subtotals to highlight important relationships between revenues and expenses
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Multi-Step Income Statement
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measures the companies ability to pay current liabilities with current assets
total current assets/total current liabilities |
Current Ratio
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the proportion of a company's assets that is financed with debt where a lower ratio is preferred
total liabilities/total assets |
Debt Ratio
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