Chapter 4 Flashcards
Name the 4 financial statements:
Income statement
Balance Sheet
Cash Flow
Retained Earnings
Balance Sheet Accounts
Assets
Liabilities
Owner’s Capital
Statement of Owner’s Equity
Capitol less Withdrawals
Income Statement Accounts
Revenues
Expenses
Classified Balance Sheet
A balance sheet that shows current assets separate from long-term assets, and current liabilities separate from long-term liabilities.
liquidity
the ease at which an asset can be converted into cash
Current asset
cash and other assets that are expected to be converted to cash or used up within a year.
long term asset
an asset a company plans to have for over a year. (land, plant, equipment, intangible assets)
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.
Long-Term Investment
Investments in bonds (debt securities) or stocks (equity securities) in which the company intends to hold the investment for longer than one year.
property, plant, and equipment
long term tangible assets
Intangible Assets
An asset with no physical form, a special right to current and expected future benefits.
copyrights, trademarks, patents
Current Liability
A liability that must be paid with Cash or with goods and services within one year, or within the entity’s operating cycle if the cycle is longer than a year
Long- Term Liability
A Liability that does not need to paid within one year or within the entity’s operating cycle, whichever is longer.
Closing Process
A step in the accounting cycle that occurs at the end of the period. The closing process consists of Journalizing and posting the closing entries to set the balances of the revenues, expenses, income summary, and dividends accounts to zero for the next period.
temporary account
nets the temporary accounts and allows us to close them all out with one compound journal entry.
permanent accounts
rollover between periods, are balance sheet accounts.
closing entries
transfers accounts to owner capital
Income Summary
A temporary account used in closing revenue and expense accounts
Post closing trial balance
A list of permanent accounts and their balances after a company has journalized and posted closing entries
accounting cycle
the process by which companies produce their financial statements for a specific period
Steps in accounting cycle
start with beginning balance
analyze and journal transactions as they occur
post journal entries to the accounts
compute the unadjusted balance for each account
prepare the unadjusted trial balance
journalize and post adjusting entries
prepare the adjusted balance
prepare financial statements journalize and post closing entries
prepare post closing trial balance
current ratio
current assets divided by current liabilities. this ratio measures the company’s ability to pay current liabilities from current asset
reversing entries
the opposite of adjusting entries.
not required by GAAP
can save time
when a company creates an adjusting entry, then post dates the opposite entry one day to account for the prior expense/revenue in the next period
