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Accounting cycle
Process by which companies produce their financial statements for a specific period.
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Classified balance sheet
A balance sheet that classifies each asset and each liability as either current or long-term.
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Closing the accounts
Step in the accounting cycle at the end of the period. Closing the accounts consists of journalizing and posting the closing entries to set the balance of the revenue, expense, and dividend account to zero for the next period.
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Closing entries
Entries that transfer the revenue, expense, and dividend to the retained earnings account.
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Current assets
Assets that are expected to be converted to cash, sold, or consumed during yhe next 12 months, or within tge business' normal operating cycle if the cycle is longer than a year.
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Current liabilities
Debts due to be paid with cash or with goods and services within a year, or within the entity's operating cycle if tge cycle is longer then a year.
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Current ratio
Current assets divided by current liabilities. This ratio measures the company's ability to pay current liabilities from curent assets.
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Debt ratio
Total liabilities divided by total assets. This ratio reveals the proportion of a company's assets that it has financed with dept.
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Income summary
A temporary "holding tank" account into which revenues and expenses are transferred prior to their final transfer to the retained earning account.
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Liquidity
Measure of how quickly an item can be converted to cash.
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Long-term assets
Any assets that will NOT be converted to cash or used up within the business's operating cycle, or one year, whichever is greater.
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Long-term liabilities
Liabilities that are not current.
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Operating cycle
Time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash.
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Permanent accounts
Accounts that are NOT closed at the end of the period- the assets, liability, common stocks, and retained earnings accounts.
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Postclosing trial balance
List of the accounts and their balances at the end of the period after journalizing and posting the closing entries. This last step of the accounting cycle ensures that the ledger is in balance to start the next accounting period. It should include only balance sheet accounts.
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Reversing entries
Special journal entries that ease tge burden of accounting for transactions in the next period.
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Temporary accounts
The revenue and expense acounts that relate to particular accounting period and are closed at the end of that period. For a corporation, the dividend account is also temporary.
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Work sheet
A columnar document designed to help move data from tge trial balance to their financial statements.
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