Chapter 4: Vocab Flashcards
current assets
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.
notes receivable
Amounts that customers owe.
current liabilities
Liabilities that will be due within a short time that are paid out of current assets.
long-term liabilities
Liabilities that will not be due for a long time.
permanent accounts
Also called real accounts. The balances of the accounts reported on the balance sheet carried forward from year to year.
temporary accounts
Also called nominal accounts. Accounts not carried forward because they relate only to one period.
closing entries
At the beginning of the next period, temporary account should have zero balances. To achieve this, temporary account balances are transferred to permanent accounts at the end of the account period. Closing entries are the entries that transfer these balances.
closing the books
The process of transferring temporary accounts to permanent accounts.
income summary
A temporary account that is only used during the closing process.
clearing account
Clearing the revenue and expense accounts of the balances. An income summary is a clearing account.
accounting cycle
The accounting process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance.
liquidity
The ability to convert assets into cash.
solvency
The ability of a business to pay its debts.
working capital
the excess of the current assets of a business over its current liabilities. Working Capital = Current Assets - Current Liabilities.
current ratio
Current assets divided by current liabilities. More useful than working capital in marking comparisons across companies with industry averages.
