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25 Cards in this Set

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Time Period Principle
Assumes that an organizations activities can be divided into specific time periods such as: months, quarters, semi annual, and annual.
Annual financial statements cover..
a 12 month period.
Interim financial statements cover..
less than a year.
Calender Year
Jan 1- Dec 31
Fiscal Year
Any consecutive 12 months
Natural Business Year End
Year ends when sales are at their lowest.
Accrual Basis
Revenues recorded when earned and expenses recorded when incurred. Consistent with GAAP
Cash Basis
Revenues recognized when cash is received, expenses are recorded when cash is paid. Not Consistent with GAAP
Matching
Requires expenses be recorded in the same period as the revenues earned as a result of these expenses.
Unadjusted Trial Balance
List of accounts and balances prepared BEFORE adjustments are recorded.
Adjusted Trial Balance
List of accounts and balances prepared AFTER adjusting entries have been posted.
Post-Closing Trial Balance
Consists of a list of only balance sheet accounts (permanent accounts and their balances).
Adjusting Entry
Recorded to bring an asset or liability accounts balance to its proper amount. It also updates a related expense or revenue.
Types of adjusting entries..
- Prepaid (deferred) Expense
- Depreciation
- Unearned (deferred) Revenue
- Accrued Expense
- Accrued Revenue
Prepaid Expenses
Items paid for in advance of receiving their benefits. Assets, prepaid insurance, rent, supplies...
Depreciation
cost-salvage value/useful life
Unearned Revenues
Liabilities created by the receipt of cash in advance of providing goods or services.
Accrued Expenses
Costs that are incurred in a period but are both unrecorded and unpaid.
Accrued Revenues
Revenues earned in a period that are both unrecorded and not yet received in cash.
Temporary (Nominal) Accounts
Income statement accounts (revenue & expenses), dividends, and the income summary. All are closed and start at zero the next year.
Permanent (Real) Accounts
All balance sheet accounts (assets, liabilities, and oe). Not closed and balances are carried forward.
Steps in closing
Close: all revenue accounts to the income summary, all expense accounts to the income summary, the income summary account to the retained earnings, dividends account to retained earnings.
Classified Balance Sheet
Organizes assets and liabilities into important subgroups that provide information to decision makers.
Profit Margin
Useful measure of a company's operating results. Formula to compute is: PM= NI/Net Sales (% of profit in each
dollar of sales)
Current Ratio=
Current assets/current liabilities