Chapter 4: Completing the Accounting Cycle Flashcards
accounting cycle
The process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance.
calendar year
A year beginning on January 1 and ending on December 31, used for sole proprietors and partnerships.
clearing account
An account to which are transferred the revenue and expense account balances. Also known as income summary.
closing entries
The entries that transfer the balances of the revenue, expense, and withdrawals accounts to the owner’s capital account.
closing process
The process of transferring temporary account balances to permanent accounts at the end of the accounting period. Also known as closing the books.
closing the books
The process of transferring temporary account balances to permanent accounts at the end of the accounting period. Also known as the closing process.
current assets
Cash and other assets that are expected to be converted to cash, sold, or used up, usually within one year or less, through the normal operations of the business.
current liabilities
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 ratio
Current assets divided by current liabilities, a ratio of 1 indicates the company can cover their current liabilities with current assets. Also known as working capital ratio.
fiscal year
The annual accounting period adopted by a business.
income summary
An account to which the revenue and expense account balances are transferred at the end of the period. Also known as a clearing account.
long term liabilities
Liabilities that usually will not be due for more than one year.
other assets
Other classes within the asset subsection, such as long-term investments and intangible assets.
permanent accounts
Balance sheet accounts that are relatively permanent and are carried forward year to year.
temporary accounts
Accounts that report amounts for only one period.
