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70 Cards in this Set

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According to the American Accounting Association, "the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information."
The sequence of steps that a business uses to keep track of what has happened in the business and to report the financial effect of those events
Accounting Cycle
Equation that indicates a company's financial position at any point in time; defined as liabilities + owners' equity = assets
Accounting Equation
Methods by which companies summarize all transactions that affect a particular component of their financial statement.

Accounts are used to summarize all transactions that affect a particular component of the financial statement.
A plan set out in monetary terms, prepared and approved prior to a defined period of time, and usually showing either or both the planned income to be generated and the expenditure to be incurred during that time period.
The recording of a transaction in an accounting journal
A ledger that records data on amounts owed to a business by its customers for goods sold on credit
Accounts Receivable Ledger
Inflows of assets resulting from the ongoing operation of a business
A type of budgeting that begins with the previous year's budget numbers
Incremental Budgeting
The excess of revenues over expenses
Net Income
Legislation enacted by the U.S. government as a measure to promote better and more transparent financial reporting from public companies.
Sarbanes-Oxley Act
Accounting system through which businesses pay employees, keep a ledger of payments to each employee, withhold taxes and other amounts from employee pay, and post withheld amounts (e.g., social security) to the general ledger as liabilities to be paid to government entities on behalf of the employee.
Payroll System
Costs incurred by companies to produce revenues
A book or file in which transactions are recorded in the order they occur.
General Journal
Anything of value owned by the company
Journal into which a business records particular types of transactions, such as credit sales or cash disbursements.
Specialized Journal
The records of transactions that a business uses to manage customer and vendor relationships.

Examples of ______ include:
- Cash receipts
- Credit Card Receipts
- Cash Register Tapes
- Cancelled Checks
- Customer Invoices
- Vendor Invoices
- P.O.'s
- Deposit Slips
- Loan Notes
Source Documents
A book (in a manual accounting system) or an electronic file (in a computerized accounting system) into which accounting transactions are chronologically recorded.
A summary of all the accounts of a business
General Ledger
The length of time, on average, that it takes for customers to pay invoices
Situation in which the costs incurred to produce and maintain a venture's revenue eventually are less than the revenue, resulting in profit for the venture.
A transaction that occurs whenever the status or ownership of a thing of value changes.

Accounting is based on the concept of a ________. A _____ tranaction occurs whenever the status or ownership of a thing of value changes. Examples of financial tranactions include:
- Writing a check from a bank account
- Making a deposit to a bank account
- Paying cash for a purchase
- Making a purchase on credit
- Making a payment to an account payable
- Receiving a payment on an account receivable.
- A deteriorating asset
- An appreciating asset
- Paying an employee
- Collecting sales or other taxes
Financial Transaction
Rules–developed by the Financial Accounting Standards Board–to which accounting practitioners adhere.
Genrally Accepted Accouting Principles (GAAP)
A board consisting of seven members who issue statements and guidelines regarding accounting practices
Finanical Accounting Standards Board (FASB)
A type of loan available to firms that have accumulated assets
Asset-Backed Loan
Debts owed by a company to its creditors, including obligations to perform services in the future. _____ include accounts payable and notes payable.
Statement's that present a company's financial position, results of operations, and flow of cash during a particular period of time
Financial Statments
Additional statments generated by an accounting system that report on such areas as accounts receivable, accounts payable, payroll systems, and inventory control systems.
Substatment Report
A ledger that records data about products or services that have been acquired by the business and have flowed into inventory but have not yet been paid for.
Accounts Payable Ledger
A ledger that accounts for each item or type of item in inventory and enables the entrepreneur to know how much of each item is being sold and at what times of the year, how much of each item is in stock, and how much of each item should be reordered and when.
Inventory Control Ledger
The movement of money into and out of a business. _____ consists of both inflows and outflows and summary of position
Cash Flow
The time lag between when a business pays suppliers and when it receives payment from customer
Cash Flow Cycle
A method of budgeting that begins anew with each budget area at the beginning of each budget period.

-in contrast, makes no such assumptions, and budgetary control is achieved by comparing actual costs, revenues, and performances against the set budget
Zero-Based Budgeting
A budget prepared specifically to manage the cash flowing into and out of the venture.

There are (4) steps in preparing a cash budget.
- Determine an adequate minimum cash balance for the venture
- Forecast cash receipts
- Forecast cash disbursments
- Determine the end-of-month cash balance
Cash Budget
A payment method by which a venture receives payments on the contract as various milestones within the project are reached
Progress Billing
A fee negotiated by a company and collected at the beginning of a project; the retainer fee ensures that the venture will receive some cash on a project that has an unknown finish date or that may not lead to a successful outcome for the client
Retainer Fee
A standard business form that informs purchasers of how much they owe, when they need to make a payment to avoid a penalty, and where payment should be sent.
How quickly an invoice is processed by a corporation after it has been received; invoices are typically processed according to their importance and their aging.
Purchasing and Payment Cycle
The claims of the owners, partners, and shareholders against the firms's assets
Owner's Equity
A payment method by which a venture receives payments on the contract as various milestones within the project are reached
Progress Billing
Businesses that purchase a venture's receiables at a discount and are then responsible to collect the receivable from the customer.
Factoring Firms
An entrepreneur should set the price for products or services based on the cost of producing them. (T or F)
Net income, a chief barometer of business, is also known as the top line. (T or F)
All the accounts of a business are summarized in the general ledger.(T or F)
AP accounts are assets, and AR accounts are liabilities (T or F)
The budget is the short-term financial expression of a business plan or proposal in tune with the future operational plan. (T or F)
In general, the more recent an invoice, the more likely it is to be paid. (T or F)
A factoring firm purchases a venture's receivables at a markup and then pays the receivable for the customer.(T or F)
The language of business is accounting.(T or F)
The purpose of AR accounts is to keep data on amounts owed by the business to its vendors for goods purchased on credit. (T or F)
The fifth step in the accounting cycle is to create journal entries. (T or F)
An example of a journal source document is
Credit Card Receipts
The fundamental equation of business is
revenue – cost = profit.
The first step in managing cash effectively is for the entrepreneur to understand the venture's
Cash Flow Cycle
The rule of thumb for a cash budget is that it is best for an entrepreneur to
Underestimate future sales.
Which of the following payment methods ensures that at least some cash will be received on a project that has an unknown finish date or that may not lead to a successful outcome for the client?
Retainer Fee
Accounting is divided into two types:
Managerial and Financial
Is intended primarily for use by external decision makers (such as investors, creditors, and the I.R.S.)
Financial Accounting
Is used by internal decision makers, such as the entrepeneur, and others who have been hired to manage the company, such as a CFO or other executive
Managerial Accounting
AR accounts are assets, and AP accounts are liabilities. (T or F)
AR accounts generally carry a debit balance, and AP accounts carry a credit balance or a liablity balance. (T or F)
AR system produces bills to customers, wheras the AP system produces checks to pay suppliers. (T or F)
Other than increasing sales, the entrepeneur can inprove a venture's cash flow using two different approaches:
1) Accelerate receipt of income
2) Delay payment on debt obligations
1) Obtain data from business activites
2) Record transactions in accounts
3) Update business balances
4) Make end of period adjustments
5) Prepare financial statements
6) Close the books
Steps in accounting cylce
Are the movement of money into the venture. ____ occur most often from the sale of goods or services to customers. If the venture extends credit to customers, then an inflow occurs when the money is collected, not at the time of the sale. A bank loan is also a cash inflow.
Are the movement of money out of the business. ____ occur generally when the venture pays expenses. If the business involves reselling goods, tehn the largest outflow is most likely to be for the purchase of inventory. A manfacturing business's largest outflows will most likely be for purchase of raw materials and other components, including payroll, needed for manufacturing the final product. Purchasing fixed assets, paying back loans, and paying accounts payable are also cash outflows.
A _________ results in a debit or deposit to the bank account and a credit to the proper sales revenue account.
Cash sale
A _________ is posted as a debit or increase in the asset AR account and a credit to the sales revenue
Credit sale
The AR system then generates three primary reports:
1) A ledger or report for a single customer
2) An aged accounts report, which is a listing of total amounts owed by all customers together with columns that show the ages of unpaid amounts
3) A statement or bill to customers, usually printed and mailed on a monthly basis
When selecting an accounting firm that is not one of the major firms, entrepreneurs have a few options that they can take to ensure that they are working with a quality firm. (3 steps)
1) entrepreneurs can look at the number of the firm's CPAs who are accredited by the American Institute of Certified Public Accountants (AICPA).
2) entrepreneurs can look at references
3)entrepreneurs need to look for the following qualities:
- Reputation
- Professionalism
- Ethics
- Reliabilit