Accounting Chapters 1-7

  1. Account
    Account: is a standardized format that organizations used to accumulated the dollar effect of transaction on each financial statement item.
  2. Accounting
    Accounting: is the system that collects and processes (analyzes
  3. Accounting Cycle
    Accounting Cycle: is the process followed by entities to analyze and record transactions
  4. Accounting Entity
    Accounting Entity: is the organization for which financial data are to be collected
  5. Accounting Period
    Accounting Period: is the time period covered by the financial statements
  6. Accrual Basis Accounting
    Accrual Basis Accounting: records revenues when earned and expenses when incurred
  7. Accrued Expenses
    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.
  8. Accrued Revenues
    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.
  9. Additional Paid-In Capital
    Additional Paid-In Capital: (Paid-In capital
  10. Adjusting Entries
    Adjusting Entries: are entries necessary at the end of the accounting period to measure all revenues and expenses of that period.
  11. Assets
    Assets: are economic resources with probable future benefits owned by the entity as a result of past transactions.
  12. Audit
    Audit: is an examination of the financial reports to ensure that they are represent what they claim and conform with GAAP.
  13. Average Cost Method
    Average Cost Method: uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.
  14. Balance Sheet
    Balance Sheet: (Statement of Financial Position) reports the amount of assets
  15. Bank Reconciliation
    Bank Reconciliation: is the process of verifying the accuracy of both the bank statement and the cash accounts of a business.
  16. Bank Statement
    Bank Statement: is the monthly report from the bank that shows deposits recorded
  17. Basic Accounting Equation
    Basic Accounting Equation: (balance sheet equation): Assets: = Liabilities + Stockholders� Equity
  18. BI+P-EI=CGS
    Cost of Goods Sold Equation:
  19. Board of Directors
    Board of Directors: elected by the stockholders to represent their interests
  20. Cash
    Cash: is money or any instrument that banks will accept for deposit and immediate credit to a company�s account
  21. Cash Basis Accounting
    Cash Basis Accounting: records revenues when cash is received and expenses when cash is paid.
  22. Cash Equivalents
    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.
  23. Closing Entry
    Closing Entry: transfers balances in temporary accounts to Retained Earnings and established zero balances in temporary accounts.
  24. Comparable Information
    Comparable Information: allows comparisons across businesses because similar accounting methods have been applied.
  25. Conservatism
    Conservatism: suggest that care should be taken not to overstate assets or revenues or understate liabilities and expenses.
  26. Consistent Information
    Consistent Information: can be compared over time because similar accounting methods have been applied.
  27. Continuity (Going-Concern) Assumption
    Continuity (Going-Concern) Assumption: states that businesses are assumed to continue to operate into the foreseeable future
  28. Contra-Assets
    Contra-Account: is an account that is an offset to
  29. Contributed Capital
    Contributed Capital: results from owners providing cash (and sometimes other assets) to the business.
  30. Corporate Governance
    Corporate Governance: is the procedures designed to ensure that the company is managed in the interest of the shareholders.
  31. Cost-Benefit Constraint
    Cost-Benefit Constraint: suggests that the benefits of accounting for and reporting information should outweigh the costs.
  32. Credit
    Credit: is on the right side of an account
  33. Credit Card Discount
    Credit Card Discount: is the fee charged by the credit card company for services.
  34. Current Assets
    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.
  35. Current Liabilities
    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.
  36. Debit
    Debit: is on the left side of the account.
  37. Direct Labor
    Direct Labor: refers to the earnings of employees who work directly on the products being manufactured.
  38. Discontinued Operations
    Discontinued Operations: result from the disposal of a major component of the business and are reported net of income tax effects.
  39. Earnings Forecast
    Earnings Forecast: are predictions of earnings for future accounting periods.
  40. Expenses
    Expenses: are decreased in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period.
  41. Extraordinary Items
    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.
  42. Factory Overhead
    Factory Overhead: are manufacturing costs that are not raw material or direct labor costs.
  43. Financial Accounting Standards Board (FASB)
    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
  44. Finished Goods Inventory
    Finished Goods Inventory: includes manufactured goods that are complete and ready for sale.
  45. First-In
    First-Out (FIFO) Method
  46. Form 10-K
    Form 10-K: is the annual report that publicly traded companies must file with the SEC.
  47. Form 10-Q
    Form 10-Q: is the quarterly report that publicly traded companies must file with the SEC.
  48. Form 8-K
    Form 8-K: is used by publicly traded companies to disclose any material event not previously reported that is important to investors (e.g.
  49. Gains
    Gains: are increases in assets or decreasing in liabilities from peripheral transactions.
  50. Generally Accepted Accounting Principles (GAAP)
    Generally Accepted Accounting Principles (GAAP): are the measurement rules used to develop the information in financial statements.
  51. Goods Available for Sale
    Goods Available for Sale: refers to the sum of beginning inventory and purchases (or transfers to finished goods) for the period.
  52. Gross Profit (Gross Margin)
    Gross Profit (Gross Margin): is the net sales less cost of goods sold.
  53. Historical Cost Principle
    Historical Cost Principle: (or cost principle) requires assets to be recorded at historical cost that
  54. Income before Income Taxes (Pretax Earnings)
    Income before Income Taxes (Pretax Earnings): is revenues minus all expenses except income tax expense.
  55. Income for Operations (Operating Income)
    Income for Operations (Operating Income): equals net sales less cost of goods sold and other operating expenses.
  56. Income Statement
    Income Statement: (Statement of Income
  57. Institutional Investors
    Institutional Investors: are managers of pension
  58. Internal Controls
    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
  59. Inventory
    Inventory: is tangible property held for sale in the normal course of business or used in producing goods for services for sale.
  60. Journal Entry
    Journal Entry: is an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format.
  61. Last-In
    First-Out (LIFO) Method
  62. Lenders (Creditors)
    Lenders (Creditors): include suppliers and financial institutions that lend money to companies.
  63. Liabilities
    Liabilities: are probable debts or obligations of the entity that result from past transactions
  64. Liabilities: are probable debts or obligations of the entity that result from past transactions
    which will be paid with assets or services.
  65. LIFO Liquidation
    LIFO Liquidation: is a sale of a lower-cost inventory item from beginning LIFO inventory.
  66. LIFO Liquidation: is a sale of a lower-cost inventory item from beginning LIFO inventory.
    Lower of Cost or Market (LCM)
  67. LIFO Reserve
    LIFO Reserve: is a contra-asset for the excess of FIFO over LIFO inventory.
  68. Losses
    Losses: are decreases in assets or increases in liabilities from peripheral transactions.
  69. Lower of Cost or Market (LCM)
    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.
  70. Matching Principle
    Matching Principle: requires that expenses be recorded when incurred in earning revenue.
  71. Material Amounts
    Material Amounts: are amounts that are large enough to influence a user�s decision.
  72. Merchandise Inventory
    Merchandise Inventory: includes goods held for resale in the ordinary course of business.
  73. Net Book Value (Book Value
    Carrying Value)
  74. Net Realizable Value
    Net Realizable Value: is the expected sales price less selling costs (e.g.
  75. Notes
    Notes: (footnotes) provide supplemental information about the financial condition of a company without which the financial statements cannot be fully understood.
  76. Notes Receivable
    Notes Receivable: are written promises that require another party to pay the business under specified conditions (amount
  77. Operating (Cash-to-Cash)
    Operating (Cash-to-Cash): is the time it takes for a company to pay cash to suppliers
  78. Par Value
    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.
  79. Percentage of Credit Sales Method
    Percentage of Credit Sales Method: bases bad debt expense on the historical percentage of credit sales that result in bad debts.
  80. Periodic Inventory System
    Periodic Inventory System: ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count.
  81. Permanent (Real) Account
    Permanent (Real) Account: are the balance sheet accounts that carry their ending balances into the next accounting period
  82. Perpetual Inventory System
    Perpetual Inventory System: a detailed inventory record is maintained
  83. Post-Closing Trial Balance
    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.
  84. Prepaid Expenses
    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.
  85. Press Release
    Press Release: is a written public news announcement normally distributed to major news service.
  86. Primary Objective of External Financing Reporting
    Primary Objective of External Financing Reporting: is to provide useful economic information about a business to help external parties make sound financial decisions.
  87. Private Investors
    Private Investors: include individuals who purchase shares in companies.
  88. Public Company Accounting Oversight Board (PCAOB)
    Public Company Accounting Oversight Board (PCAOB): is the private sector body given the primary responsibility to issue detailed auditing standards
  89. Purchase Discount
    Purchase Discount: is a cash discount received for prompt payment of an account.
  90. Purchase Returns and Allowances
    Purchase Returns and Allowances: are a reduction in the cost of purchases associated with unsatisfactory goods.
  91. Raw Materials Inventory
    Raw Materials Inventory: includes goods held for resale in the ordinary course of business.
  92. Relevant Information
    Relevant Information: can influence a decision; it is timely and has predictive and/or feedback value.
  93. Reliable Information
    Reliable Information: is accurate
  94. Replacement Cost
    Replacement Cost: is the current purchase price for identical goods.
  95. Retained Earnings
    Retained Earnings: refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business.
  96. Revenue Principle
    Revenue Principle: states that revenues are recognized when (1) goods or services are delivered
  97. Revenues
    Revenues: are increasing in assets or settlements of liabilities from ongoing operations.
  98. Sales (or Cash) Discounts
    Sales (or Cash) Discounts: (cash discount) is a cash discount offered to encourage prompt payment of an account receivable.
  99. Sales Returns and Allowances
    Sales Returns and Allowances: is a reduction of sales revenue for return of or allowances for unsatisfactory goods.
  100. Securities and Exchange Commission (SEC)
    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.
  101. Separate-Entity Assumption
    Separate-Entity Assumption: states that business transactions are accounted for separately from the transaction of owners.
  102. Specific Identification Method
    Specific Identification Method: identifies the cost of the specific item that was sold.
  103. Statement of Cash Flow
    Statement of Cash Flow: (Cash Flow Statement) reports inflows and outflows of cash during the accounting period in the categories of operating
  104. Statement of Retained Earnings
    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.
  105. Stockholders� Equity (Owners� or Shareholders� Equity)
    Stockholders� Equity (Owners� or Shareholders� Equity): (also called owners� equity or shareholder�s equity) is the financing provided by the owners and business operations.
  106. T-account
    T-account: is a tool for summarizing transactions effects for each account
  107. Temporary (Nominal) Accounts
    Temporary (Nominal) Accounts: are income statement accounts that are closed to Retained Earnings at the end of the accounting period.
  108. Time Period Assumption
    Time Period Assumption: indicates that the long life of a company can be reported in shorter time periods.
  109. Transaction
    Transaction: is (1) an exchange of assets or services
  110. Transaction Analysis
    Transaction Analysis: is the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation.
  111. Trial Balance
    Trial Balance: is a list of all accounts with their balances to provide a check on the equality of the debits and credits.
  112. Unearned (Deferred) Revenues
    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.
  113. Unit-of-Measure Assumption
    Unit-of-Measure Assumption: states that accounting information should be measured and reported in the national monetary unit.
  114. Unqualified (Clean) Audit Opinion
    Unqualified (Clean) Audit Opinion: is an auditor�s statement that the financial statements are fair presentations in all material respect in conformity with GAAP.
  115. Work in Process Inventory
    Work in Process Inventory: includes goods in the process of being manufactured.
  116. Financial Leverage Formula
    Average Total Assets/Average Stockholder's Equity
  117. Retained Earnings Formula
    Beginning RE + Net Income - Dividends = RE
  118. Return on Equity Formula
    Net Income/Average Stockholder's Equity
  119. Net Profit Margin
    Net Income/Net Sales
  120. Asset Turnover Ratio
    Net Sales/Average Total Assets
  121. Earnings Per Share
    Net Income/Average Shares Outstanding
  122. Inventory Turnover Ratio
    Cost of Goods Sold Equation/Average Inventory
  123. Gross Profit Formula
    Gross Profit/Sales Revenue
  124. Financial Leverage Percentage
    Return on Equity - Return on Assets
  125. Receivable Turnover Ratio
    Net Sales/Average Net Receivables
  126. Return on Assets Formula
    Net Income/Average Total Assets
  127. Calculating Over or Under Payment
    Income Over or Understatement X PE Ratio = Over or Under Payment
  128. Discount Formula
    Amount Saved/Amount = Interest Rate Annual Interest + 365 Days/Discount Period x Interest Rate
Card Set
Accounting Chapters 1-7
Accounting terms from Libby, Libby, Short 6e