Accounting Flashcards
Account
a device for recording the changes (increases or decreases) in the fundamental accounting elements
Accountant
one who is concerned with the design of the system of records, the preparation of reports based upon the recorded data, and the interpretation of the reports
Account balance
the difference between the total debits and the total credits in an account
accounting
a language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial data.
accounting cycle
the process involved in journalizing, posting to the ledger, taking a trial balance, preparing statements, making adjusting and closing entries, and preparing a post - closing trial balance.
accounting equation
assets equal Liabilities plus Owner’s Equity
accounts payable
an unwritten promise to pay creditors for property, such as merchandise, supplies, or equipment, purchased on credit, or for services received on credit.
accounts receivable
an unwritten promise by a customer to pay, at a later date, for goods sold or services rendered
accounts receivable turnover
measures how many times per year receivables are collected.
Calculation: net credit sales divided by average accounts receivable.
average accounts receivable
(beginning accounts receivable + ending accounts receivable) divided by 2
accrual accounting
recording in each fiscal period applicable expenses, whether paid or not, and income earned, whether collected or not.
accrued expense
an expense incurred in operating a business during an accounting period, but not yet paid
accrued income
income actually earned during an accounting period but which will not be received until a future period
acid
test ratio (quick ratio) - quick assets divided by current liabilities
activity analysis
measures how efficiently a firm is utilizing its assets
adjusted trial balance
a trial balance taken after adjusting entries have been recorded
adjusting entries
entries made at the conclusion of a fiscal period to bring accounts up to date
age of accounts receivable
measures the average time required to collect receivables.
Calculation: 365 days divided by Accounts Receivable Turnover
age of inventory
measures the average time required to sell inventory.
Calculation: 365 days divided by Inventory Turnover
allowance for bad debts (allowance for doubtful accounts)
a contra - asset account utilized to accumulate totals against accounts receivable
assets
property of monetary value owned by a business
bad debts expense (uncollectible accounts expense; loss from uncollectible accounts)
accounts receivable that are uncollectible
balance sheet (statement of financial position; statement of financial condition)
a formal financial statement illustrating the assets, liabilities, and owner’s equity of a business as of a specific date
balance sheet common
size statements/percentage method - express the major items in the balance sheet as a percent of the total assets and compare with previous fiscal periods.
balance sheet comparative forms
record the balance sheet data for two or more comparable periods on the same form so that the information can be readily compared
banker’s method/360 day method
a method of computing interest based on the assumption that there are 360 days in a year
bank statement
an itemized listing prepared by the bank of additions to the subtractions from a depositor’s account
bank statement reconciliation
the process by which the depositor attempts to reconcile the bank statement balance with the checkbook balance
bookkeeper (information processor)
one who is involved in the process of recording financial information in a prescribed manner
bookkeeping
the recording of financial information in a prescribed manner.
book value (undepreciated cost)
the cost of a fixed asset less its accumulated depreciation
business papers (source documents)
the first record of a business transaction, such as check stubs, receipts, sales invoices, purchase invoices, cash register tapes, etc.
calendar year
a twelve-month period beginning January 1st and concluding on December 31st
cancelled check
a check which has been paid by the bank and returned to the drawer for recordkeeping
capital (net worth; owner’s equity; proprietorship)
the amount by which the total assets exceed the total liabilities of a business; an owner’s financial interest in a business
cash
coins, currency (paper money), checks, credit card receipts and money orders received from others, as well as money deposited in the bank
cash basis accounting
an accounting practice in which revenue is not recognized in the accounting records until received and in which expenses are not recognized until paid.
cash discounts
discounts from quoted prices as an inducement for prompt payment of invoices
cash disbursements (cash payments)
money and money substitutes paid
cash short and over
a special ledger account that is used to keep track of unexplained shortages or overages of cash
Certified Public Accountant (CPA)
an individual possessing a college education, having practical experience in accounting and who has passed a comprehensive state examination in order to be certified to practice public accounting in that state
chart of accounts
a list of all the account titles and the account numbers assigned to them
checks
a piece of commercial paper drawn on funds in a bank account and payable on demand
check stub
a form on which information is recorded by the drawer of a check concerning the check drawn; a source document
chronological
in accounting, to record in order of time
classifying
the sorting of the many business transactions in an orderly and systematic manner
closing entries
entries made at the end of each reporting period to transfer the balances of the temporary owner’s equity accounts to the permanent owner’s equity account and to reduce the balance in the temporary owner’s equity accounts to zero in preparation for the next accounting period
compound journal entry
an accounting entry that involves more than two accounts
contra account
an account designed to accumulate totals to offset a related account
Cr.
the abbreviation for credit
credit
the right side of a standard account
credit balance
a condition that occurs when the total of the credits in an account is larger than the total of the debits in that account
credit memorandum
a source document that grants credit to a buyer for purchase allowance; items in the bank adds to the account balance
creditor
a business or individual to whom a debt is owed
current ratio
current assets divided by current liabilities
current assets
cash of other assets that will be converted into cash or consumed within one year
current liabilities
debts of a business that are generally paid within one year
data entry (recording)
the committing of a business transaction and the events surrounding such into writing
debit
the left side of a standard account
debit balance
a condition that occurs when the total of the debits in an account is larger than the total of the credits in that acocunt
debit memorandum
items the bank deducts from the account balance
debtor
the business or individual who owes a debt
deposits in transit
deposits that have been made and added to depositor’s checkbook, but have not yet been listed on the bank statement
deposit slip (deposit ticket)
a bank form that lists those cash items (currency and coin) and individual checks to be deposited
depreciation
the loss in value of a fixed asset due to wear and tear and the passage of time; or, a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life
depreciation expense
the portion of the original cost of a fixed asset that is assigned as an expense to the reporting period expected to benefit from its use
disbursement
a payment
discount period
a specific number of days during which a discount is available if the account is paid
dishonored check
a check not paid by the bank when properly presented
double entry accounting (double entry bookkeeping)
the process of recording equal debits and credits for a single business transaction
Dr.
the abbreviation for debit
drawing account (owner withdrawals)
a separate owner’s equity account in which withdrawals of cash or other assets by the owner for personal use are recorded
employee
one who is under the control and direction of an employer with regard to the performance of employment
E.O.M.
end of month
expenses
a decrease in assets, other than withdrawals by the owner, which result from efforts to produce revenues
face of note
the principal sum the maker of a note promises to pay
federal income tax withholding
the amount that an employer must withhold from an employee’s pay for income tax purposes
Federal Insurance Contributions Act (F.I.C.A.)
a federal act that requires most employers and employees to pay taxes to support the federal social security program
Federal Unemployment Tax Act (F.U.T.A.)
a federal act imposed upon each employer for financing the administration costs of the federal and state unemployment compensation programs
F.I.C.A.
abbreviation for Federal Insurance Contributions Act
fiscal period
a period of time covered by an income statement
fixed assets (long-term assets)
property of a relatively permanent nature used in the operation of a business and not intended for resale
fixed liabilities (long-term liabilities)
liabilities that are not due and payable within one year
F.U.T.A.
Federal Unemployment Tax Act
general journal
a book of original entry in which any business transactions is recorded in chronological order
general ledger
the book of accounts
gross earnings (gross pay)
income before any deductions have been made
gross margins (gross profit)
net sales minus the cost of goods sold
gross profit percentage
gross profit divided by net sales
in balance
a condition in which the total of the debits and the total of the credits are equal in an account
income (revenue)
an inflow of assets as a result of selling a product or providing a service
income statement (profit and loss statement; statement of operations; operating statement)
a formal financial statement which presents the income, expenses, and resulting net profit or net loss for a given period.
income statement common
size statements/percentage method - express the major items in the Income Statement as a percent of Net Sales and compare with previous fiscal periods
income statement comparative forms
record the income statement date for two or more comparable periods of the same form so that the information can be readily compared
income tax
a tax levied on the earnings of individuals and businesses by federal, state, and local governments.
independent contractor
any person who agrees to perform a service for a fee and who is not subject to the control of those for whom the service is performed
intangible assets
those assets that cannot be touched or grasped (examples include patents, copyrights and goodwill)
interest
money paid for the use of money
interpreting
explaining the significant events of developments that occur, usually taking the form of analysis and comparisons
inventory (merchandise)
goods purchased for resale at a profit
inventory turnover
the number of times the average in inventory has been sold or used up (turned over) during a period
calculation: cost of goods sold for period divided by average inventory
average inventory
(beginning inventory divided by ending inventory) divided by 2
invoice
a source document showing quantity, description, prices of items, total amount of purchase and the terms of payment
journal
any book of original entry
journalizing
the process of recording business transactions in a book of original entry
ledger
a book of accounts in which date from transactions recorded in journals are posted and thereby summarized
liabilities
any debts that a business owes
liquidity analysis
measures the ability of the firm to meet its current obligations
maturity date
the date on which payment is due on a promissory note
mortgage payable
a long-term liability; a written promise that pledges real property as security for payment of a debt
net earnings (net pay; take home pay)
gross pay less payroll deductions; an employee’s take home pay
net income (net profit)
the difference between gross profit and expenses when gross profit is larger
net loss
the difference between gross profit and expenses when expenses are larger
net purchases
purchases minus purchases returns and allowances minus purchase discounts
net sales
sales minus sales returns and allowances minus sales discounts
notes payable
a written promise to pay a creditor a certain amount in the future
notes receivable
a written promise of a customer to pay the business a sum of money at a future date
N.S.F.
Not Sufficient Funds
operating expenses (overhead)
expenses incurred in the normal operation of a business
original cost basis
the amount originally paid for a depreciable asset
other expenses
expenses incurred that are not the direct result of regular trading activities of a business
other income
income received that is not the direct result of regular trading activities of a business
outstanding checks
checks that have been drawn and subtracted from the depositor’s checkbook, but which have not yet been presented to the bank for payment
overdraft
the issuance of a check without sufficient funds in the account when it is presented for payment
permanent accounts
accounts that accumulate information across accounting periods; all accounts reported on the balance sheet
petty cash fund
a fund of currency and coin established for the payment of small amounts of money
petty cash voucher
a form used to reflect payments from the petty cash fund
post
closing trial balance - a work paper prepared after all temporary owner’s equity accounts have been closed and all permanent accounts have been balanced and ruled, proving the equality of the debits and credits.
postdated check
a check dated subsequent to (following) its date of issuance
posting
the transferal of data from the journal to the ledger
prepaid expenses
items which are considered to be assets when acquired, but which will become expenses when consumed or expired
principal
the face value of a promissory note upon which interest is computed
profitability analysis
provides evidence concerning the earnings potential of a company and how effectively the firm is being managed
profit and loss statement
same as income statement
profit margin
net income divided by net sales
promissory note
a written promise made by a person or business to pay a certain sum of money to another person or business at a specified time in the future
proprietorship
same as captial
proving cash
the process of determining whether the amount of cash, both on hand and in the bank, is the same as what is indicated in the accounting records
purchase invoice
a source document prepared by the seller listing the items shipped, their cost and the method of shipment (from the buyer’s viewpoint)
purchase order
a written order by a buyer for merchandise or other property specified in the purchase requisition
purchase requisition
a form used to request the responsible person or department to purchase merchandise or other property
purchases
a temporary owner’s equity account used to record the buying of merchandise for resale
purchases discounts
a temporary owner’s equity contra purchases account used to record discounts taken on inventory purchases; the amount of any discounts granted by suppliers to encourage prompt payment of their invoices
purchases returns and allowances
a temporary owner’s equity contra purchases account utilized to record the return of merchandise to the manufacturer or supplier as the result of material defects in workmanship and/or inferior product quality
quarterly
a three - month period
quick assets
cash, marketable securities, accounts and notes receivable
rate
the annual percentage rate used to compute interest
retail sales tax
a tax imposed on tangible personal property sold at retail
salary
generally considered to be compensation for managerial or administrative services, expressed in terms of a month or year
sales
a temporary owner’s equity account used to record the earning of revenue
sales discounts
a temporary owner’s equity contra sales account used to record discounts given to customers as an incentive for prompt payment
sales invoice
a source document prepared by the seller that lists the items shipped, their cost and the method of shipment (from the seller’s viewpoint)
sales returns and allowances
a temporary owner’s equity contra sales account used to record credit given to a customer for shortages or damaged goods
salvage value
the estimated value of a fixed asset at the end of its useful life
statement of account
a report sent to each customer, usually at the end of the month, which indicates the status of his or her accounts
statement of net worth (statement of owner’s equity)
a formal financial statement which summarizes all of the changes in owner’s equity during a specified period of time
stop payment order
an order by a depositor requesting a bank not to pay on a check previously issued
straight
line depreciation - a method in which the depreciable cost basis (original cost basis less salvage value) of an asset is apportioned equally over its estimated useful life expressed in terms of month or years
summarizing
bringing accounting data together in a way that will further enhance its usefulness, usually by means of reports and statements
supplies
a type of asset that will be consumed as it is used (examples: embalming supplies and office supplies)
S.U.T.A.
State Unemployment Tax Act
T account
a skeleton form of an account used for instructional purposes
tangible assets
those assets that can be appraised by value or seen or touched (ex. pews, chairs, etc)
temporary owner’s equity accounts
accounts utilized to accumulated income, expenses, and owner’s withdrawals for one accounting period only
term of note (time)
the period of time from the date of the note to the maturity date
transaction
any activity of a business enterprise that involves the exchange of values
transaction analysis
the effect of business activities on the accounting elements
transposition error
an amount written with the digits in the incorrect order
trial balance
a work paper proving the equality of the debit and credit balances in the ledger
U.C.F.
Uncollectible Funds
useful life
the estimated determinable life of a fixed asset
W-2 Form
Wage and Tax Statement; a report furnished by the employer for each employee indicating gross earnings and deductions
W-4 Form
Employee’s Withholding Allowance Certificate
Wage
a form of compensation usually for skilled and unskilled labor, expressed in terms of hours, weeks or pieces completed.
