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29 Cards in this Set

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Definition: the time it takes for a company to pay cash to supplier, sell goods and services to customers and Collect cash from customers.
The Operating Cycle (Cash-to-Cash Cycle)
Definition: The assumption that the long life of a company can be reported in shorter time periods.
The Time Period Assumption
Increases in assets or settlements of liabilities from ongoing operations.
Revenues
Any outflow of money for any purpose.
Expenditure
Decreases in assets or increases in liabilities from ongoing operations. When an amount is incurred to generated revenue during a current period.
Expense
Any interest or dividends earned on an investment.
Investment Income
An increase in assets or decrease in liabilities from peripheral transactions.
Gains
Decreases in assets or increases in liabilities from peripheral transactions.
Losses
The system where revenues are recorded when cash is received and expenses when cash is paid.
Cash Basis Accounting
The system where revenues are recorded when earned and expenses when incurred regardless of the timing of cash receipts or payments.
Accrual Basis Accounting
Under the Revenue Principle, what are the four criteria or conditions that must normally be met for revenue to be recognized?
1) Delivery has occurred or services have been rendered.
2) There is persuasive evidence of an arrangement for customer payment.
3)The price is fixed or determinable.
4) Collection is reasonably assured.
Does Cash need to be received before a revenue can be recognized.
No
What principle requires that expenses be recorded when incurred in earning revenue.
The Matching Principle
What is a Trial Balance?
A list of the individual accounts, usually in the financial statement order, with their debit or credit balances. It is used to provide a check on the equality of the debits and credits."
None
What are Adjusting Entries?
Adjusting Entries are made at the end of the accounting period to record all revenues and expenses that ave not been recorded but belong in the current period. They update the balance sheet and income statement accounts at the end of the accounting period.
What are the four different types of adjusting entries?
Deferred Revenues - Previously recorded liabilities that need to be adjusted at the end of the period to reflect revenues that have been earned.
Accrued Revenues - Revenues that have been earned by the end of the accounting period but which will be collected in a future accounting period.

Deferred Expenses - Previously recorded assets that need to be adjust at the end of the period to reflect incurred expeenses.

Accrued Expenses - Expenses that have been incurred by the end of the accounting period but which will be paid in a future accounting period.
None
Which Financial Statement is represented by the following equation: (Revenues + Gains) - (Expenses + Losses) = Net Income
Income Statement
Which Financial Statement is represented by the following equation: Assets = Liabilities + Stockholders' Equity
Balance Sheet
Which Financial Statement is represented by the following equation: Change in cash for the period = Cash from operations +/- Cash from Investing Activities +/- Cash from Financing Activities
Statement of Cash Flows
Which Financial Statement is represented by the following equation: Ending Stockholders' Equity = (Beginning Contributed Capital + Stock Issuances - Stock Repurchases) + Beginning Retained Earnings + Net Income - Dividends Declared)
Statement of Stockholders' Equity
Do Adjusting Entries effect Cash?
No- at the time of an adjusting entry no cash is being received or paid.
How do you determine Earnings Per Share?
Net Income / Weighted average number of shares of stock outstanding during that period. Earnings per share measures the average amount of net income for the year atributable to one share of common stock.
How do you determine Net Profit Margin?
Net Income / Net Sales
What is a closing entry?
Closing Entries are made at the end of the accounting period to transfer the balances in the temporary income statement accounts to retained earnings. The closing entries reduce the revenue/gain/expense and loss accounts to a zero balance so that accumulation can begin for the next period.
None
What are Permanent Accounts?
Balance Sheet Accounts; the asset liability and the stockholder's equity accounts (accounts that ARE NOT closed at the end of each period)
What are Temporary Accounts?
Income Statement Accounts; revenues/gains/expenses and losses (these ARE closed at the end of each period).
None
What are Real Accounts?
Another name for Permanent Accounts.
What are Nominal Accounts?
Another name for Temporary Accounts.
What is the purpose of the closing process?
1)To correctly state retained earnings. 2)To clear out the balances of the temporary accounts for the year just ended so that these subaccounts can be used again during the next period for accumulation and classification purposes.
None