AC 224 (chapter 4) Flashcards
What is a worksheet in accounting?
A multi-column spreadsheet used in the adjustment process and in preparing the financials.
It is optional and serves as an aid in preparing financial statements.
What financial statements are prepared after completing the worksheet?
- Income Statement
- Statement of Retained Earnings
- Balance Sheet
What is the process of closing the books?
Preparing the accounting records for the next period by closing all temporary accounts and bringing them to $0.
Define temporary account.
An account that relates only to a given accounting period, including all income statement accounts and dividends.
Define permanent account.
All balance sheet accounts that are not closed at the end of each period.
What are closing entries?
Entries made to transfer net income to retained earnings and to reduce retained earnings by any dividends declared during the period.
What is the Income Summary Account?
A temporary account into which companies close all revenue and expense accounts, after which the ending balance is transferred to retained earnings.
Closing entries bring accounts to what ending balance?
$0
True or False: Dividends are considered expenses.
False
What does a post-closing trial balance include?
- All permanent accounts
- Their balances
- Does not include any temporary accounts
What does the post-closing trial balance show?
The equality of debits and credits at the close of the accounting period and the open of the next.
What becomes the beginning balance in each account for the next accounting period?
The balance in each account on the post-closing trial balance.
What is a classified balance sheet?
A financial statement that groups together similar assets and similar liabilities based on whether they are current or long-term.
List the components of current assets.
- Cash
- Investments (held for less than one year)
- Receivables
- Inventories
- Prepaid expenses
What is included in long-term investments?
- Investments held for more than one year
- Long-term assets (land, buildings)
- Long-term notes receivable
What types of assets are classified as Property, Plant, and Equipment?
- Land
- Buildings
- Equipment
- Delivery vehicles
- Furniture
- Associated accumulated depreciation accounts
What are intangibles in accounting?
Assets that do not have physical substance, including goodwill, patents, copyrights, and trademarks.
Define current liabilities.
Liabilities that the company expects to pay within one year.
List examples of current liabilities.
- Accounts payable
- Salaries and wages payable
- Notes payable (if due within one year)
- Interest payable
- Income taxes payable
Define long-term liabilities.
Liabilities that the company expects to pay after one year.
List examples of long-term liabilities.
- Notes payable
- Bonds payable
- Mortgages payable
- Lease liabilities
- Pension liabilities
