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128 Cards in this Set
- Front
- Back
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Account
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Account: is a standardized format that organizations used to accumulated the dollar effect of transaction on each financial statement item.
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Accounting
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Accounting: is the system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers
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Accounting Cycle
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Accounting Cycle: is the process followed by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle.
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Accounting Entity
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Accounting Entity: is the organization for which financial data are to be collected
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Accounting Period
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Accounting Period: is the time period covered by the financial statements
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Accrual Basis Accounting
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Accrual Basis Accounting: records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.
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Accrued Expenses
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Accrued Expenses: are previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and the related payable account.
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Accrued Revenues
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Accrued Revenues: are previously unrecorded revenues that need to be adjusted at the end of the accounting period to reflect the amount earned and the related receivable account.
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Additional Paid-In Capital
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Additional Paid-In Capital: (Paid-In capital, Contributed Capital in Excess of Par) is the amount of contributed capital less the par value of the stock.
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Adjusting Entries
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Adjusting Entries: are entries necessary at the end of the accounting period to measure all revenues and expenses of that period.
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Assets
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Assets: are economic resources with probable future benefits owned by the entity as a result of past transactions.
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Audit
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Audit: is an examination of the financial reports to ensure that they are represent what they claim and conform with GAAP.
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Average Cost Method
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Average Cost Method: uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.
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Balance Sheet
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Balance Sheet: (Statement of Financial Position) reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.
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Bank Reconciliation
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Bank Reconciliation: is the process of verifying the accuracy of both the bank statement and the cash accounts of a business.
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Bank Statement
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Bank Statement: is the monthly report from the bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance.
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Basic Accounting Equation
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Basic Accounting Equation: (balance sheet equation): Assets: = Liabilities + Stockholders’ Equity
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BI+P-EI=CGS
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Cost of Goods Sold Equation:
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Board of Directors
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Board of Directors: elected by the stockholders to represent their interests, is responsible, is responsible for maintaining the integrity of the company’s financial reports.
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Cash
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Cash: is money or any instrument that banks will accept for deposit and immediate credit to a company’s account, such as a check, money order, or bank draft.
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Cash Basis Accounting
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Cash Basis Accounting: records revenues when cash is received and expenses when cash is paid.
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Cash Equivalents
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Cash Equivalents: are short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change.
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Closing Entry
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Closing Entry: transfers balances in temporary accounts to Retained Earnings and established zero balances in temporary accounts.
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Comparable Information
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Comparable Information: allows comparisons across businesses because similar accounting methods have been applied.
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Conservatism
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Conservatism: suggest that care should be taken not to overstate assets or revenues or understate liabilities and expenses.
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Consistent Information
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Consistent Information: can be compared over time because similar accounting methods have been applied.
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Continuity (Going-Concern) Assumption
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Continuity (Going-Concern) Assumption: states that businesses are assumed to continue to operate into the foreseeable future
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Contra-Assets
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Contra-Account: is an account that is an offset to, or reduction of a primary account.
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Contributed Capital
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Contributed Capital: results from owners providing cash (and sometimes other assets) to the business.
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Corporate Governance
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Corporate Governance: is the procedures designed to ensure that the company is managed in the interest of the shareholders.
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Cost-Benefit Constraint
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Cost-Benefit Constraint: suggests that the benefits of accounting for and reporting information should outweigh the costs.
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Credit
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Credit: is on the right side of an account
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Credit Card Discount
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Credit Card Discount: is the fee charged by the credit card company for services.
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Current Assets
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Current Assets: are assets that will be used or turned into cash within the year. Inventory is always considered a current asset regardless of the time needed to produce and sell it.
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Current Liabilities
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Current Liabilities: are assets that will be used or turned into cash within one year. Inventory is always considered a current asset regardless of the time needed to produce and sell it.
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Debit
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Debit: is on the left side of the account.
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Direct Labor
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Direct Labor: refers to the earnings of employees who work directly on the products being manufactured.
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Discontinued Operations
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Discontinued Operations: result from the disposal of a major component of the business and are reported net of income tax effects.
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Earnings Forecast
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Earnings Forecast: are predictions of earnings for future accounting periods.
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Expenses
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Expenses: are decreased in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period.
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Extraordinary Items
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Extraordinary Items: are gains and losses that are both unusual in nature and infrequent in occurrence; they are reported net of tax on the income statement.
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Factory Overhead
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Factory Overhead: are manufacturing costs that are not raw material or direct labor costs.
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Financial Accounting Standards Board (FASB)
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Financial Accounting Standards Board (FASB): is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles
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Finished Goods Inventory
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Finished Goods Inventory: includes manufactured goods that are complete and ready for sale.
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First-In, First-Out (FIFO) Method
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First-In, First-Out (FIFO) Method: assumes that the first goods purchased (the first in) are the first goods sold.
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Form 10-K
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Form 10-K: is the annual report that publicly traded companies must file with the SEC.
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Form 10-Q
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Form 10-Q: is the quarterly report that publicly traded companies must file with the SEC.
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Form 8-K
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Form 8-K: is used by publicly traded companies to disclose any material event not previously reported that is important to investors (e.g., auditor changes, mergers).
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Gains
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Gains: are increases in assets or decreasing in liabilities from peripheral transactions.
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Generally Accepted Accounting Principles (GAAP)
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Generally Accepted Accounting Principles (GAAP): are the measurement rules used to develop the information in financial statements.
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Goods Available for Sale
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Goods Available for Sale: refers to the sum of beginning inventory and purchases (or transfers to finished goods) for the period.
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Gross Profit (Gross Margin)
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Gross Profit (Gross Margin): is the net sales less cost of goods sold.
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Historical Cost Principle
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Historical Cost Principle: (or cost principle) requires assets to be recorded at historical cost that, on the date of the transaction, is cash paid plus the current dollar value of all noncash considerations also given in the exchange.
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Income before Income Taxes (Pretax Earnings)
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Income before Income Taxes (Pretax Earnings): is revenues minus all expenses except income tax expense.
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Income for Operations (Operating Income)
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Income for Operations (Operating Income): equals net sales less cost of goods sold and other operating expenses.
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Income Statement
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Income Statement: (Statement of Income, Statement of Earnings, Statement of Operations) reports the revenues less the expense of the accounting period.
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Institutional Investors
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Institutional Investors: are managers of pension, mutual, endowment, and other funds that invest on the behalf of others.
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Internal Controls
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Internal Controls: are the processes by which a company safeguards its assets and provides reasonable assurance regarding the reliability of the company’s financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations.
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Inventory
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Inventory: is tangible property held for sale in the normal course of business or used in producing goods for services for sale.
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Journal Entry
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Journal Entry: is an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format.
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Last-In, First-Out (LIFO) Method
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Last-In, First-Out (LIFO) Method: assumes that the most recently purchased units (the last in) are sold first.
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Lenders (Creditors)
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Lenders (Creditors): include suppliers and financial institutions that lend money to companies.
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Liabilities
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Liabilities: are probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services.
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Liabilities: are probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services.
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LIFO Liquidation
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LIFO Liquidation
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LIFO Liquidation: is a sale of a lower-cost inventory item from beginning LIFO inventory.
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LIFO Liquidation: is a sale of a lower-cost inventory item from beginning LIFO inventory.
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Lower of Cost or Market (LCM)
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LIFO Reserve
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LIFO Reserve: is a contra-asset for the excess of FIFO over LIFO inventory.
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Losses
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Losses: are decreases in assets or increases in liabilities from peripheral transactions.
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Lower of Cost or Market (LCM)
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Lower of Cost or Market (LCM): is a valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost.
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Matching Principle
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Matching Principle: requires that expenses be recorded when incurred in earning revenue.
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Material Amounts
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Material Amounts: are amounts that are large enough to influence a user’s decision.
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Merchandise Inventory
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Merchandise Inventory: includes goods held for resale in the ordinary course of business.
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Net Book Value (Book Value, Carrying Value)
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Net Book Value (Book Value, Carrying Value): of an asset is the difference between its acquisition cost and accumulated depreciation, its related contra account.
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Net Realizable Value
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Net Realizable Value: is the expected sales price less selling costs (e.g., repair and disposal costs).
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Notes
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Notes: (footnotes) provide supplemental information about the financial condition of a company without which the financial statements cannot be fully understood.
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Notes Receivable
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Notes Receivable: are written promises that require another party to pay the business under specified conditions (amount, time, interest).
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Operating (Cash-to-Cash)
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Operating (Cash-to-Cash): is the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers.
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Par Value
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Par Value: is the legal amount per share established by the board of directors; it establishes the minimum amount a stockholder must contribute and has no relationship to the market price of the stock.
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Percentage of Credit Sales Method
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Percentage of Credit Sales Method: bases bad debt expense on the historical percentage of credit sales that result in bad debts.
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Periodic Inventory System
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Periodic Inventory System: ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count.
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Permanent (Real) Account
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Permanent (Real) Account: are the balance sheet accounts that carry their ending balances into the next accounting period
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Perpetual Inventory System
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Perpetual Inventory System: a detailed inventory record is maintained, recording each purchase and sale during the accounting period.
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Post-Closing Trial Balance
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Post-Closing Trial Balance: should be prepared as the last step of the accounting cycle to check that debits equal credits and all temporary accounts have been closed.
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Prepaid Expenses
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Prepaid Expenses: are previously acquired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the asset to generate revenue.
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Press Release
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Press Release: is a written public news announcement normally distributed to major news service.
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Primary Objective of External Financing Reporting
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Primary Objective of External Financing Reporting: is to provide useful economic information about a business to help external parties make sound financial decisions.
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Private Investors
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Private Investors: include individuals who purchase shares in companies.
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Public Company Accounting Oversight Board (PCAOB)
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Public Company Accounting Oversight Board (PCAOB): is the private sector body given the primary responsibility to issue detailed auditing standards
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Purchase Discount
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Purchase Discount: is a cash discount received for prompt payment of an account.
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Purchase Returns and Allowances
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Purchase Returns and Allowances: are a reduction in the cost of purchases associated with unsatisfactory goods.
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Raw Materials Inventory
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Raw Materials Inventory: includes goods held for resale in the ordinary course of business.
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Relevant Information
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Relevant Information: can influence a decision; it is timely and has predictive and/or feedback value.
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Reliable Information
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Reliable Information: is accurate, unbiased, and verifiable.
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Replacement Cost
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Replacement Cost: is the current purchase price for identical goods.
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Retained Earnings
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Retained Earnings: refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business.
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Revenue Principle
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Revenue Principle: states that revenues are recognized when (1) goods or services are delivered, (2) there is persuasive evidence of an arrangement for customer payment, (3) for price is fixed or determinable, and (4) collection is reasonable assured.
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Revenues
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Revenues: are increasing in assets or settlements of liabilities from ongoing operations.
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Sales (or Cash) Discounts
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Sales (or Cash) Discounts: (cash discount) is a cash discount offered to encourage prompt payment of an account receivable.
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Sales Returns and Allowances
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Sales Returns and Allowances: is a reduction of sales revenue for return of or allowances for unsatisfactory goods.
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Securities and Exchange Commission (SEC)
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Securities and Exchange Commission (SEC): is the US government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements.
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Separate-Entity Assumption
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Separate-Entity Assumption: states that business transactions are accounted for separately from the transaction of owners.
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Specific Identification Method
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Specific Identification Method: identifies the cost of the specific item that was sold.
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Statement of Cash Flow
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Statement of Cash Flow: (Cash Flow Statement) reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing.
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Statement of Retained Earnings
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Statement of Retained Earnings: reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period.
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Stockholders’ Equity (Owners’ or Shareholders’ Equity)
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Stockholders’ Equity (Owners’ or Shareholders’ Equity): (also called owners’ equity or shareholder’s equity) is the financing provided by the owners and business operations.
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T-account
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T-account: is a tool for summarizing transactions effects for each account, determining balances, and drawing inferences about a company’s activities.
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Temporary (Nominal) Accounts
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Temporary (Nominal) Accounts: are income statement accounts that are closed to Retained Earnings at the end of the accounting period.
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Time Period Assumption
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Time Period Assumption: indicates that the long life of a company can be reported in shorter time periods.
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Transaction
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Transaction: is (1) an exchange of assets or services, or promises to pay between a business and one or more external parties to a business or (2) a measurable internal event such as the use of assets in operations.
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Transaction Analysis
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Transaction Analysis: is the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation.
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Trial Balance
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Trial Balance: is a list of all accounts with their balances to provide a check on the equality of the debits and credits.
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Unearned (Deferred) Revenues
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Unearned (Deferred) Revenues: are previously recorded liabilities that need to be adjusted at the end of the accounting period to reflect the amount of revenue earned.
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Unit-of-Measure Assumption
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Unit-of-Measure Assumption: states that accounting information should be measured and reported in the national monetary unit.
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Unqualified (Clean) Audit Opinion
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Unqualified (Clean) Audit Opinion: is an auditor’s statement that the financial statements are fair presentations in all material respect in conformity with GAAP.
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Work in Process Inventory
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Work in Process Inventory: includes goods in the process of being manufactured.
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Financial Leverage Formula
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Average Total Assets/Average Stockholder's Equity
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Retained Earnings Formula
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Beginning RE + Net Income - Dividends = RE
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Return on Equity Formula
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Net Income/Average Stockholder's Equity
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Net Profit Margin
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Net Income/Net Sales
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Asset Turnover Ratio
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Net Sales/Average Total Assets
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Earnings Per Share
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Net Income/Average Shares Outstanding
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Inventory Turnover Ratio
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Cost of Goods Sold Equation/Average Inventory
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Gross Profit Formula
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Gross Profit/Sales Revenue
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Financial Leverage Percentage
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Return on Equity - Return on Assets
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Receivable Turnover Ratio
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Net Sales/Average Net Receivables
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Return on Assets Formula
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Net Income/Average Total Assets
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Calculating Over or Under Payment
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Income Over or Understatement X PE Ratio = Over or Under Payment
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Discount Formula
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Amount Saved/Amount = Interest Rate Annual Interest + 365 Days/Discount Period x Interest Rate
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