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57 Cards in this Set

  • Front
  • Back
the statement of operations
Income Statement
shows changes in the retained earnings; shows what a company did with its net income
Statement of Retained Earnings
measures financial position; lists assets, liabilities, and stockholder's equity
Balance Sheet
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
Statement of Cash Flow
an information system that measures business activity, processes data into reports and communicates the results to people
Accounting
a financial examination performed by independent accountants
Audit
private organization that is responsible for formulating accounting standards
Financial Accounting Standards Board
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
Financial Accounting
generates inside information for managers, but doesn't have to meet external standards of reliability
Management Accounting
designed to meet the primary objective of financial reporting, which is to provide information useful for making investment and credit decisions
GAAP
states that each division of the company is a separate entity and the company as a whole constitutes an entity
Entity Concept
reports revenues at their actual sale value because that amount is supported by objective evidence. Account data should be neutral/unbiased and confirmed
Reliability Principle
accounts for expenses at their actual cost, not a hypothetical amount
Cost Principle
assumes that the entity will remain in operation long enough to use existing assets for their intended purposes
Going-Concern Principle
assumes the dollar is stable and constant and ignores the idea of inflation
Stable-Monetary Unit Concept
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
debts that are payable to outsiders

i.e. accounts payable, notes payable, accrued liabilities
Liabilities
ownership within a company

i.e. common stock, retained earnings, dividends, revenues, expenses
Stockholder's Equity
when total revenues exceed total expenses
Net Income
debits increase/credits decrease:
assets, dividends, and expenses
debits decrease/credits increase:
liabilities, equity, retained earnings, and revenue
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
Transaction
the record of all the changes in a particular asset, liability and equity during a period; the basic summary device of accounting
Account
records the dual effect on the entity
Double-Entry Accounting
helps to summarize transactions; left side is the debit side and the right is the credit
T-Account
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
Journal
a grouping of all the T-accounts with their balances; "keeping the books"
Ledger
the process where data is copied to the ledger
Posting
lists all accounts with their balances; summarizes all the account balances for the financial statements and shows whether debits and credits equal
Trial Balance
lists all accounts and account numbers
Chart of Accounts
falls on the side of the account-debit or credit- where increases are recorded
Normal Balance
records the impact of a business transaction as it occurs; records the transaction even if it receives or pays no cash; required by GAAP
Accrual accounting
records ONLY cash transaction; treated as revenues and cash payments are handled as expenses
Cash-basis Accounting
ensures that accounting information is reported at regular intervals
Time-period concept
governs two things: when to record revenue and the amount to record; does NOT include future payments; records revenue after it has been earned
Revenue Principle
basis for recording expenses; identify all the expenses incurred during the accounting period and measures the expenses then matches them against the revenues earned
Matching Principle
affects one income statement account and one balance sheet account
Adjusting Journal Entries
an adjustment for an item that the business paid or received cash in advance
Deferral
the cost of a plant asset over its useful life
Depreciation
an expense or revenue that occurs before the business pays or receives cash; opposite of deferral
Accrual
long-lived tangible assets
Plant Assets
shows the sum of all depreciation expenses
Accumulated Depreciation
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
Contra Asset Account
cost minus accumulated depreciation
Asset's Book Value
a liability that arises from an expense that has not yet been paid; increases liabilities and decreases stockholder's equity
Accrued Expense
a revenue that has been earned but not yet collected; increases both assets and stockholder's equity
Accrued Revenue
collects cash from customers before earning the revenue; only when the job is complete does the business earn the revenue; i.e. magazine publisher
Unearned Revenue
measures income AND updates the balance sheet
affects at least one: revenue/expense and assets/liabilities
The Adjusting Process
preparing the accounts for the next period's transactions; sets the revenues, expenses and dividends back to zero
Closing the Books
measures how quickly an item can be converted to cash
Liquidity
debts that must be paid within one year
Current Liabilities
lists the assets on top, followed by liabilities and stockholder's equity
Report Format of a Balance Sheet
lists assets on the left and the liabilities and stockholder's equity on the right
Account Format of a Balance Sheet
lists all the revenues together under one heading
Single-Step Income Statement
reports a number of subtotals to highlight important relationships between revenues and expenses
Multi-Step Income Statement
measures the companies ability to pay current liabilities with current assets

total current assets/total current liabilities
Current Ratio
the proportion of a company's assets that is financed with debt where a lower ratio is preferred

total liabilities/total assets
Debt Ratio