ch3 Flashcards
account format
A balance-sheet format that lists assets on the left and liabilities and stockholders__ equity on the right.
accrual
An expense or a revenue that occurs before the business pays or receives cash. An accrual is the opposite of a deferral.
accrual accounting
Accounting that records the impact of a business event as it occurs regardless of whether the transaction affected cash.
accrued expense
An expense incurred but not yet paid in cash.
accrued revenue
A revenue that has been earned but not yet received in cash.
accumulated depreciation
The cumulative sum of all depreciation expense from the date of acquiring a plant asset.
adjusted trial balance
A list of all the ledger accounts with their adjusted balances.
book value (of a plant asset)
The asset__s cost minus accumulated depreciation.
cash-basis accounting
Accounting that records only transactions in which cash is received or paid.
classified balance sheet
A balance sheet that shows current assets separate from long-term assets and current liabilities separate from long-term liabilities.
closing the books
The process of preparing the accounts to begin recording the next period__s transactions. Closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue expense and dividendsaccounts to zero. Also called closing the accounts.
closing entries
Entries that transfer the revenue- expense- and dividends balances from these respective accounts to the Retained Earnings account.
contra account
An account that always has a companion account and whose normal balance is opposite that of the companion account.
current asset
An asset that is expected to be converted to cash- sold- or consumed during the next 12 months or within the business__s normal operating cycle if longer than a year.
current liability
A debt due to be paid within one year or within the entity__s operating cycle if the cycle is longer than a year.
current ratio
Current assets divided by current liabilities. Measures a company__s ability to pay current liabilities with current assets.
debt ratio
Ratio of total liabilities to total assets. States the proportion of a company__s assets that is financed with debt.
deferral
An adjustment for which the business paid or received cash in advance. Examples include prepaid rent prepaid insurance and supplies
depreciation
Allocation of the cost of a plant asset to expense over its useful life.
expense recognition principle
The basis for recording expenses. Directs accountants to identify all expenses incurred during the period to measure the expenses and to match them against the revenues earned during that same period.
liquidity
Measure of how quickly an item can be converted to cash.
long-term asset
An asset that is not a current asset.
long-term liability
A liability that is not a current liability.
multi-step income statement
An income statement that contains subtotals to highlight important relationships between revenues and expenses.
net working capital
A measure of liquidity; Current assets__current liabilities.
operating cycle
Time span during which cash is paid for goods and services that are sold to customers who pay the business in cash.
permanent accounts
Asset liability and stockholders__ equity accounts that are not closed at the end of the period.
plant assets
Long-lived assets- such as land- buildings- and equipment- used in the operation of the business. Also called fixed assets.
prepaid expense
A category of miscellaneous assets that typically expire or get used up in the near future. Examples include prepaid rent- prepaid insurance- and supplies.
report format
followed by liabilities and stockholders__ equity below.
revenue principle
The basis for recording revenues; tells accountants when to record revenue and the amount of revenue to record.
single-step income statement
An income statement that lists all the revenues together under a heading such as Revenues or Revenues and Gains. Expenses appear in a separate category called Expenses or perhaps Expenses and Losses.
temporary accounts
The revenue and expense accounts that relate to a limited period and are closed at the end of the period are temporary accounts. For a corporation- the Dividends account is also temporary.
time-period concept
Ensures that accounting information is reported at regular intervals.
unearned revenue
A liability created when a business collects cash from customers in advance of earning the revenue. The obligation is to provide a product or a service in the future.
