Defenitions Flashcards
1
Q
What is internal control
A
Internal controls are accounting processes and procedures that help ensure financial reporting accuracy and regulatory compliance. They also help prevent fraud.
2
Q
Average cost
A
An accounting method that uses the average cost of production to calculate inventory value and product prices
3
Q
Inventory turnover
A
Measure of how often a business sells and replaces its inventory
4
Q
Specific identification formula
A
Used to calculate the cost of ending inventory by multiplying the number of each items by its purchase price
5
Q
First in Frist out (FIFO Cost Formula)
A
An accounting method that assumes the oldest inventory costs are used to calculate the cost of goods sold (COGS)
6
Q
Consignor
A
A party who sends goods to another party, called the consignee, for sale
7
Q
Consignee
A
Person or entity that receives goods from a consignor for the purpose of selling or transferring them
8
Q
Consigned Goods
A
Goods shipped by a consignor, who retains ownership, to a party called the consignee, who holds the goods for sale
9
Q
Net realization value
A
The value for which an asset can be sold, minus the estimated cost of selling or discarding the asset
10
Q
Lower cost and net realization value(LCNRV):
A
a basis for stating inventory at the lower of its original cost and its net realizable value at the end of the period
11
Q
Days in inventory
A
A liquidity measure of the average number of days that inventory is held. It is calculated at 365 days divided by the inventory turnover ratio.
12
Q
Sales Allowances
A
An allowance granted by the seller on the selling price when the buyer is dissatisfied with the merchandise but agrees to keep it, rather than return it.
13
Q
FOB
A
Freight terms indicating that the seller will pay for the shipping costs of the goods and is responsible for the goods until they arrive at their destination (normally the buyers place of business).
14
Q
Purchase Discount
A
A price reduction, based on the invoice price less any returns and allowances, to encourage customers to make an early payment of a credit purchase.
15
Q
Function(classifying expenses by
A
A method of organizing expenses on the income statement by way of the activity (business function) for which they were incurred (such as cost of goods sold, administrative, and selling).
16
Q
Shrinkage
A
Loss of inventory due to theft or spoilage
17
Q
Contra Expense Account
A
An account that is offset against(reduces) an expense account on the statement of income. Expenses include purchase return and allowances and purchase discount.
18
Q
Operating Expense
A
Expenses incurred the process of earning sales revenue. They are deducted from gross profit to arrive at income from operations
19
Q
Periodic Inventory System
A
A company physically counts inventory at the end of each period to determine what’s on hand and the cost of goods sold.
20
Q
Cost of Goods available for sale
A
The sum of beginning inventory and the cost of goods purchased
21
Q
Net purchase
A
Purchases less purchases return and allowances and purchase discount, the total cost of goods bought by a company during a specific period c after accounting for any return, allowances and discounts received from supplier
22
Q
Profit margin
A
Net income expressed as a percentage of sales. It is calculated by dividing net income by sales
23
Q
Sales Return and Allowances
A
Cash refunds or credit provided by the seller to the buyer when they return goods or agree to keep goods that they are dissatisfied with.
24
Q
Gross Profit Margin
A
Gross Profit expressed as percentage of sales. It is calculated by dividing gross profit by sale
25
Sales
Revenue from the sale of inventory(product or services)
26
Refund Liability
Account used to track expected sales return and allowances
27
Comprehensive Income
A figure that represents the combined net income and other comprehensive income of a company.
28
Purchased Return
Cash refunds or credits granted by the seller for goods returned by the buyer.
29
Purchased Discount
A reduction in the amount a buyer pays a supplier if the buyer pays within a certain time period
30
Purchase Allowance
An allowance granted by the seller on the selling price when the buyer is dissatisfied with the merchandise but agrees to keep it, rather than return it.
31
Nature(Classifying Expenses by):
A method of organizing expenses on the income statement by way of their natural classification (such as salaries, transportation, depreciation and advertising)
32
Other comprehensive income
Gains and losses that affect shareholders equity but are not shown in net income or loss. They related to complex transactions such as certain types of gains and losses on investment.
33
Gross profit
Sales Revenue less cost of goods sold
34
Income from operations
The results of a company’s normal operating actives it is calculated as gross profit less operating expenses
35
Multi-step statement of income
A statement of income that shows several steps to determine net income or loss by separately reporting sales, gross profit, income from operations, income before income tax, and net income
36
Statement of comprehensive income
A financial statement that presents net income (loss) and other comprehensive income (loss) for a specific period of time. Other comprehensive income items, such as realized and unrealized gains and losses from investments accounted for using the fair value through OCI model, are not reported on the statement of income because they are not considered critical to the evaluation of management performance, but are included in comprehensive income.
37
Estimated Inventory Return
The estimated cost of inventory that is expected to be returned by customers
38
COGS
A statement of income that shows only one step ( Revenue less expenses) in determining income before income tax, after which income tax expense is deducted to determine net income (loss)
39
Single step statement of income
A statement of income that shows only one step(revenue less expenses) in determining income before income tax, after which income tax expenses is deduced to determine net income (loss)
40
Contra Revenue Account
An account that is offset against (reduces) a revenue account on the statement of income. Examples include sales returns and allowances and sales discounts.
41
Accrued Revenue
Revenue earned but not yet received in cash that are recorded at the end of an accounting period by an adjusting entry
42
Temporary Accounts
Revenue, expenses and dividend declared accounts whose balances are transferred to retained earnings at the end of an accounting period
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Depreciation
(Also known as amortization) The process of allocating the cost of a depreciable asset ( for example, building and equipment) over its useful life
44
Performance obligation
A company requirement to provide goods or services to a customers, as outlined under a contract
45
Earning Based Approach
An approach to revenue recognition that recognizes revenue when performance is sustainability complete and collection is reasonably assured
46
Unadjusted trial balance
A list of accounts and their balances before adjusting journal entries have been made
47
Variable consideration
The amount reflected in the transaction price of a contract resulting from discount, refunds, rebate, price concessions, incentives, performance bonuses, penalties, or like which affect the consideration that a customer is expected to pay under the contract
48
Cash Basis Accounting
A major accounting method that recognizes revenues and expenses at the time cash is received or paid out.
49
Closing Entries
Journal entries at the end of an accounting period to transfer the balances of temporary accounts (revenue, expenses, and dividend declared) to the permanent shareholders equity account retained earnings
50
Adjusting Entries
Journal entries made at the end of an accounting period to update the accounts to ensure the proper recognition of revenues and expenses
51
Performance obligation
A “ promise “ to deliver goods or services in lieu of payment (in advance or otherwise)
52
Accrued Expenses
Expenses incurred but not yet paid in cash that are recorded at the end of the period by an adjusting entry
53
Useful life
The length of services of a depreciable asset
54
Income summary
A temporary account used in closing revenue and expenses accounts. The balance in each individual revenue and expense account is credit or debited and summarized in the income summary account before being closed to retained earnings (via the income summary account)
55
Permanent Accounts
Statement of financial position accounts whose balances are carried forward to the next accounting period
56
Carrying Amount( also known as book value)
Amount at which an asset is recognized in the statement of financial position. Can be used to describe the assets of a company as a whole or individual assets such as
accounts receivable(cost less allowance for doubtful accounts)
Depreciable assets(cost less accumulated depreciation)
Amortized assets(cost less accumulated amortization)
Investments, bonds as well as
57
Contract based approach
An approach to revenue recognition that recognizes revenue when an entity satisfies a performance obligation in a contract by transferring a promised good or service to a customer
58
Post closing trial balance
A list of permanent accounts and their balances after closing entries have been journalized and posted
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Adjusted trial balance
A list of accounts and their balances after all adjusting journal entries have been recorded and posted
60
Expenses recognition
The process of recording an expenses when there is a decrease in future economic benefits related to a decrease in an asset or an increase in a liability in the course of ordinary activities. Expense recognition is linked to revenue recognition in that expenses are recognized in the period in which a company makes efforts to generate revenues
61
Cash Basis Accounting
An accounting basis in which revenue is recorded only when cash is received and an expense is recorded only when cash is paid
62
Double entry accounting system
A system that records the dual effect of each transaction in appropriate accounts
63
Posting
The procedure of transferring journal entries to the general ledger accounts
64
Chart of accounts
A list of company’s accounts and account numbers that identify where the accounts are in the general ledger
65
General ledger
The book of accounts that contains a company’s asset, liability and shareholders equity (common shares, retained earnings, revenue, expenses and dividends declared) accounts.
66
Account
An individual accounting record of increases and decreases in a specific asset, liability, and or shareholders equity (common shares, retained earnings, revenue, expense, dividend declared item. )
67
Trial balance
A list of general ledger accounts and their balances at a specific time, usually at the end of the accounting period. There are three kinds of trial balances:
1. Unadjusted trial balances: before adjusting entries are made
2. Adjusted trial balances: after adjusted entries are made
3. Post closing trial balances: after closing entries are made
68
Accounting transaction
An economic event that is recorded in the financial statements because it involves an exchange that affects assets, liabilities and or shareholders equity
69
General journal
The book of original entry in which transactions are recorded in chronological (date) order
70
Accounting information system
The system of collecting and processing transaction data and communicating financial information to decision makers.
71
Normal balance
The side of an account used to increase the account. Asset accounts have a normal debt balance. Same as liabilities and shareholders equity
72
Explain the accounting cycle
1. Analyzed transactions
2. Journalize transactions
3. Post transactions
4. Prepare a trial balances
5. Journalize and post adjusting entires
6. Prepare an adjusted trial balance
7. Prepare financial statements
8. Journalize and post closing entries
9. Prepare a post closing trial balances
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GAAP
Generally accepted accounting principles: a general guide, having substantial authoritative support, that describes how economic events should be recorded and reported for financial reporting purposes
76
Financial activities
Activities that report the cash effects of debit or equity financing. These include
1. Borrowing or repaying cash from or to lenders
2. Issuing or reacquiring shares or paying dividends to investors
77
Creditors
Users of accounting information, including suppliers, that grant credit (sell on account) to a customer
78
Dividends
The distribution of retained earnings from a corporation to its shareholders, normally in the form of cash.
79
Statement of cash flow
A financial statement that provides information about the cash inflows(receipts) and cash outflows (payment) for a specific period of time
80
81
Retained Earnings
The amount of accumulated net income (less net losses, if any) from the prior and current periods that has been retained and reinvested in the corporation for future use and not distributed to shareholders as dividends
82
Share capital
Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares
83
Report Entity Concept
The concept that economic activity that can be identified with a particular company must be kept separate and distinct from the activities of owners and of all other economic entities
84
Deficit
Negative balance in retained earnings resulting from cumulative net losses exceeding cumulative net income
85
Statement of financial position
A financial statement that reports the assets, liabilities and shareholders equity at a specific date
86
Shareholders equity
The shareholders claim in total assets, represented by the investments of the shareholders(share capital) and un-distributed earnings (retained earnings) generated by a company
87
Accounting equation
Asset = liability + shareholders equity
88
Objective of financial reporting
The provision of financial information about a company that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the company
89
Classified Section of Financial Position
A statement of financial position that groups together similar assets and similar liabilities using standard classifications and sections
90
Profitability Ratio
Measures of a company’s operating success for a specific period of time. These include the gross profit margin, profit margins, return on assets, return on common shareholders equity, earnings per share, price-earnings, payout and divided yield ratios
91
Contra Asset Account
An account that is offset against(reduces) another related asset account on the statement of financial position. Examples include allowance for doubtful accounts and accumulated depreciation
92
Accrual Basis of Accounting
An accounting basis in which transactions that change a company’s financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash
93
Working Capital
A measure liquidity used to evaluate a company’s short term debt paying ability. It is calculated by subtracting current liabilities from current assets
94
Bank indebtedness
A short term loan such as an operating line of credit, pre-arranged with a bank to cover cash shortfalls
95
Non Current assets
Assets that are not expected to be converted into cash, sold, or used up by the business within one year of the financial statements date
96
Fair value (also known as current value or current cost)
An estimate of the price a company would pay to purchase an asset or settle a liability today with arms length parties under normal business conditions
97
Current ratio
A measure of liquidity used to evaluate a company’s short term debt paying ability. It is calculated by dividing current assets by current liabilities
98
Property , land and equipment
Tangible assets, such as land, building and equipment with relatively long useful lives that are being used to operate the business
99
Trading investments
Investments that are acquired principally for the purpose of selling in the near term
100
Intangible assets
Assets of a long lived nature that do not have physical substance but represent a privilege or a right granted to, or held by a company
101
Solvency Ratio
Measures of a company’s ability to survive over a long period of time by having enough assets to settle its liabilities as they fall due. These include the debt to total assets and times interested earning ratios and free cash flows
102
Cost Constraints
The persuasive constraints that ensure that the value of the information provided in financial reporting is greater than the cost of providing it
103
Operating Cycle
Average period of time it takes for a business to pay cash to obtain products or services and then receives cash from customers for these product or services
104
Notes receivable
Amounts owned by customers or others they are normally interest bearing and supported by a written promise to repay
105
Inventory.
Goods held for sale to customers
106
Elements of Financial Statements
A set of broad categories of classes used to group financial information for presentation in the financial statements, such as assets, liabilities, equity, income and expenses
107
Relevance
A fundamental qualitative characteristic describing information that makes a difference in a users decision. It should have predictive value, confirmatory value or both and be material
108
Basic Earnings per Share
A measure of profitability showing the income earned by each common share. It is calculated by dividing income available to common shareholders by the weighted average number of common shares
109
Going concern Assumption
The assumption that the business will remain in operation for the foreseeable future
110
Comparability
An enhancing qualitative characteristic of useful information that enables users to identify and understand similars in and differences among items
111
Verifiability
An enhancing qualitative characteristic of useful information that means that different knowledgeable and independent users could reach a consensus that the information is faithfully represented
112
Deferred Revenue
A liability representing cash receipts from customers that have not yet met the criteria for revenue recognition
113
Goodwill
The value of favourable, unidentifiable attributes related to a company as a whole. It is calculated when one business acquires another and pays more than the fair value of the company’s net identifiable assets
114
Current Assets
Assets that are expected to be converted into cash, sold or used up within one year of the company’s financial statements due
115
Current Liabilities
Obligations that will be paid or settled within one year of the company’s financial statements due to
116
Faithful representation
A fundamental qualitative characteristic describing information that represents economic reality. It must be completely, neutral and free from material error
117
Long term investment
Investments in debt securities intended to be held for many years to earn interest, and equity securities of other companies held to generate investment income or held for strategic reasons
118
Debt to total assets
A measure of solvency showing the percentage of total financing that is provided by lenders and the other creditors. It is calculated by dividing total liabilities by total assets
119
Conceptual framework
A coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function and limits of financial accounting statements
120
Prepaid expenses
Costs paid in advance of use that benefit more than one accounting period. They are initially recorded as assets and become expenses only when they are used or consumed and no longer have future benefits
121
Current portion of long term debt
The portion of a non current or long term loan that is repayable within the current year
122
Notes Payable/loans payable
Amounts owed to suppliers, banks, or others that are normally interest bearing and supported by a written promise to repay.
123
Understandability
An enhancing qualitative characteristic of useful information that means that information is clearly and concisely classified, characterised and presented
124
Fair Value Basis of Accounting
A method of accounting under which assets are recognised on the statement of financial position at their fair values
125
Non-current liabilities
Obligations that are not expected to be paid or settled within one year of the financial statements due
126
Liquidity ratio
Measure of a company’s short term ability to pay its maturing obligations and to meet unexpected needs for cash. These include working capital and the current, receivables turnover, average collection period, inventory turnover and days in inventory ratios
127
Historical Cost Basis of Accounting
Measurements basis that states that assets and liabilities should be recorded at their cost at the time of acquisition
128
Timeliness
An enhancing qualitative characteristic of useful information that means that information is available to decision making in time to be capable of influencing their decisions
129
Contra Liability Account
One that is debited for the explicit purpose of offsetting a credit to another liability account
