Chapter 4 Flashcards
The process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance.
accounting cycle
Another name for the income summary account because it has the effect of clearing the revenue and expense accounts of their balances.
clearing account
The entries that transfer the balances of the revenue, expense, and drawing accounts to the owner’s capital account.
closing entries
The transfer process of converting temporary account balances to zero by
- transferring the revenue and expense account balances to Income Summary
- transferring the income summary account balance to the owner’s capital account
- transferring the owner’s drawing account to the owner’s capital account.
closing process
The process of transferring temporary accounts balances to permanent accounts at the end of the accounting period.
closing the books
Cash and other assets that are expected to be converted to cash or sold or used up, usually within one year or less, through the normal operations of the business.
current assets
Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets.
current liabilities
A financial ratio that is computed by dividing current assets by current liabilities.
current ratio
The annual accounting period adopted by a business.
fiscal year
An account to which the revenue and expense account balances are transferred at the end of a period.
Income Summary
The ability to convert assets into cash.
liquidity
Liabilities that usually will not be due for more than one year.
long-term liabilities
A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle.
natural business year
A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate.
notes receivable
Term for balance sheet accounts because they are relatively permanent and carried forward from year to year.
real (permanent) accounts
