Chapter 4 Terms Flashcards
Acid-test ratio
A measure of the company’s immediate short-term liquidity.
Classified balance sheet
A balance sheet that has several classifications or sections.
Closing entries
Entries made at the end of an accounting period to transfer the balances of temporary accounts (revenues, expenses, Income Summary, and drawings) to the permanent owner’s equity account, Owner’s Capital.
Closing the books
The process of journalizing and posting closing entries to update the capital account and prepare the temporary accounts for the next period’s postings.
Correcting entries
Entries to correct errors that were made when transactions were recorded.
Current assets
Cash and other assets that will be converted to cash, sold, or used up within one year from the balance sheet date or in the company’s normal operating cycle
Current liabilities
Obligations that are expected to be settled within one year from the balance sheet date or in the company’s normal operating cycle
Current ratio
A measure of short-term debt-paying ability that is determined by dividing current assets by current liabilities.
Goodwill
The amount paid to acquire another company that exceeds the fair value of the company’s net identifiable assets.
Income Summary
A temporary account that is used in closing revenue and expense account
Intangible assets
Long-lived assets that do not have physical substance and are rights and privileges that result from ownership. They include patents, copyrights, trademarks, trade names, and licenses.
Liquidity
The ability of a company to pay obligations as they come due within the next year and to meet unexpected needs for cash
Long-term investments
Investments in long-term debts that management intends to hold to earn interest or in the equity of other companies that management plans to hold for many years as a strategic investment.
Non-current assets
Assets that are not expected to be converted to cash, sold, or used by the business within one year of the balance sheet date or its operating cycle.
Non-current liabilities
Obligations that are expected to be paid after one year or longer.
Operating cycle
The time it takes to go from starting with cash to ending with cash in producing revenues
Permanent accounts
Balance sheet accounts, whose balances are carried forward to the next accounting period.
Post-closing trial balance
A list of debit and credit balances of the permanent (balance sheet) accounts after closing entries have been journalized and posted.
Property, plant, and equipment
Long-lived tangible assets that are used in the operations of the business and are not intended for sale. They include land, buildings, equipment, and furniture.
Reversing entry
An entry made at the beginning of the next accounting period that is the exact opposite of the adjusting entry made in the previous period.
Temporary accounts
Revenue, expense, Income Summary, and drawings accounts, whose balances are transferred to Owner’s Capital at the end of an accounting period.
Worksheet
A multiple-column form that may be used in the adjustment process and in preparing financial statements.
Working capital
The difference between current assets and current liabilities.
