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74 Cards in this Set

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Accrual Basis Accounting
Records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.
1
Accrued Expenses
Previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and its related payable account. (Cash to be paid after expense incurred; e.g., interest payable, wager payable, property taxes payable.)
1
Accrued Revenues
Previously unrecorded revenues that need to be adjusted at the end of the accounting period to reflect the amount earned and its related receivable account. (Cash to be received after being earned; e.g., interest receivable, rent receivable.)
1
Aging of Accounts Receivable Method
Estimates uncollectible accounts based on the age of each account receivable.
2
Allowance Method
Bases bad debt expense on an estimate of uncollectible accounts.
2
Amortization
Systematic and rational allocation of the acquisition cost of an intangible asset over its useful life.
2
Annuity
A series of periodic cash receipts or payments that are equal in amount each interest period.
2
Average Cost Method
uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.
2
Balance Sheet
Reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time.
2
Bond Discount
The difference between selling price and par when a bond is sold for less than par.
2
Bond Premium
The difference between selling price and par when a bond is sold for more than par.
2
Cash Basis Accounting
Records revenues when cash is received and expenses when cash is paid.
3
Cash Equivalents
Short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change.
3
Cash Flows from Financing Activities
Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise.
3
Cash Flows from Investing Activities
Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies.
3
Cash Flows from Operating Activities
Cash inflows and outflows directly related to earnings from normal operations.
3
Cost of Goods Sold Equation
BI + P – EI = CGS (Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold)
3
Coupon Rate
The stated rate of interest on bonds.
3
Credits
The right side of an account.
3
Cumulative Dividend Preference
Preferred stock feature that requires specified current dividends not paid in full to accumulate for every year in which they are not paid. These cumulative preferred dividends must be paid before any common dividends can be paid.
3
Current Assets
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.
4
Current Dividend Preference
The feature of preferred stock that grants priority on preferred dividends over common dividends.
4
Current Liabilities
Short-term obligations that will be paid in cash (or other current assets) within the current operating cycle or one year, whichever is longer.
4
Debits
The left side of an account.
4
Declining-Balance Depreciation
The method that allocates the cost of an asset over its useful life based on a multiple of (often two times) the straight-line rate.
4
Deferred Expenses
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. (Cash paid before expense incurred; e.g., supplies, prepaid expenses, and buildings and equipment.)
6
Deferred Revenues
Previously recorded liabilities that need to be adjusted at the end of the period to reflect the amount of revenue earned. (Cash received before revenue earned; e.g., unearned ticket revenue or deferred subscription revenue.)
6
Depreciation
Process of allocating the cost of buildings and equipment over their productive lives using a systematic and rational allocation of the cost of property, plant, and equipment (but not land) over their useful lives.
7
Direct Method
The method of presenting the operating activities section of the statement of cash flows reporting components of cash flows from operating activities as gross receipts and gross payments.
7
Dividends in Arrears
Dividends on cumulative preferred stock that have not been declared in prior years.
7
Effective-Interest Method
Amortizes a bond discount or premium on the basis of the effective-interest rate; it is the theoretically preferred method.
7
Effective-Interest Rate
Another name for the market rate of interest on a bond.
7
Expenses
Decreases in assets or increases in liabilities from ongoing operations incurred to generated revenues during the period.
7
FIFO Method
Assumes that the first goods purchased (the first in) are the first goods sold.
7
Free Cash Flow
Cash Flows from Operating Activities – Dividends – Capital Expenditures
7
Future Value
The sum to which an amount will increase as the result of compound interest.
7
Gains
Increases in assets or decreases in liabilities from peripheral transactions.
8
Goodwill (Cost in Excess of Net Assets Acquired)
For accounting purposes, the excess of the purchase price of a business over the market value of the business's assets and liabilities.
8
Historical Cost Principal
Requires assets to be recorded at the historical cash-equivalent cost, which on the date of the transaction is cash paid plus the current dollar value of all noncash considerations also given in the exchange.
8
Income Statement
Reports the revenues less the expenses of the accounting period.
8
Indirect Method
The method of presenting the operating activities section of the statement of cash flows that adjusts net income to compute cash flows from operating activities.
8
LIFO Method
Assumes that the most recently purchased units (the last in) are sold first.
8
Losses
Decreases in assets or increases in liabilities from peripheral transactions.
8
Lower of Cost or Market (LCM)
Valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost.
9
Market Interest Rate
Current rate of interest on a debt when incurred; also called yield or effective-interest rate.
9
Market Tests
Ratios that tend to measure the market worth of a share of stock.
9
Matching Principle
Requires that expenses be recorded when incurred in earning revenue.
9
Net Book (or Carrying) Value
of an asset is the acquisition cost of the asset less accumulated depreciation, depletion, or amortization.
9
Net Realizable Value
The expected sales price less selling costs (e.g., repair and disposal costs).
9
Operating Cycle
The time it takes for a company to pay cash to suppliers, sell those goods and services to customers, and collect cash from customers.
10
Par Value
(1) A 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. (2) Also, another name for bond principal or the maturity aount of a bond.
10
Periodic Inventory System
Ending inventory and cost of goods sold determined at the end of the accounting period base on a physical inventory count.
10
Perpetual Inventory System
A detailed inventory record maintained recording each purchase and sale during the accounting period.
10
Preferred Stock
Stock that has specified rights over common stock.
10
Present Value
The current value of an amount to be received in the future; a future amount discounted for compound interest.
10
Purchase Discount
Cash discount received for prompt payment of an account.
10
Revenue Expenditure
Expenditures that maintain the productive capacity of an asset during the current accounting period only and are recorded as expenses.
10
Revenue Principle
Revenues are recognized when goods or services are delivered, there is evidence of an arrangement for customer payment, the price is fixed or determinable and collection is reasonably assured.
11
Revenues
Increases in assets or settlements of liabilities from ongoing operations.
11
Separate-Entity Assumption
States that business transactions are separate from the transactions of the owners.
11
Specific Identification Method
Identifies the cost of the specific item that was sold.
11
Stated Rate
The rate of cash interest per period specified in the bond contract.
11
Statement of Cash Flows
Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.
13
Statement of Retained Earnings
Reports the way that net income and the distribution of dividends affected the financial portion of the company during the accounting period.
13
Stockholders' Equity
The financing provided by the owners and the operations of the business.
13
Straight-Line Amortization
Simplified method of amortizing a bond discount or premium that allocates an equal dollar amount to each interest period.
13
Straight-Line Depreciation
Method that allocates the cost of an asset in equal periodic amounts over its useful life.
13
Tests of Liquidity
Ratios that measure a company's ability to meet its currently maturing obligations.
14
Tests of Profitability
compare income with one or more primary activities.
14
Tests of Solvency
Ratios that measure a company's ability to meet its long-term obligations.
14
Time Period Assumption
The long life of a company can be reported in shorter time periods.
14
Time Value of Money
Interest that is associated with the use of money over time.
14
Units-of-Production Depreciation
Method that allocates the cost of an asset over its useful life based on its periodic output related to its total estimated output.
14
Transaction analysis model
A = L + SE
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