Exam 1 Flashcards
financing activities are?
financing the company, issuing stock, raising debt or equity funds
liability?
the obligation of a business
creditor?
someone who a company owes a debt
revenue?
the inflow of assets resulting from the sale of goods or services
asset?
something you own that has a future economic benefit
expense?
an outflow of assets resulting from the sale of goods or services
what is the accounting equation?
assets = liabilities + owner’s equity
owners equity?
the owner’s claim on the assets of an entity
retained earnings?
the owners’ claims to the companies assets that result from its earnings that have not been paid out in dividends,
(the part of the shareholder’s equity that represents the income earned - dividends paid over the life of an entity)
balance sheet?
statement of position, summarizes the assets, liabilities, and owners’ equity at a specific point in time
income statement?
statement of performance, summarizes the revenues and expenses
net income?
revenues - expenses
statement of retained earnings?
summarizes the income earned and dividends paid over the life of a business
statement of cash flows?
summarizes a company’s cash receipts and cash payments during the period from operating, investing, and financing activities, (tracks what happened to the cash)
current assets?
assets that are expected to be realized in cash or sold or consumed in a year or one operating cycle(whichever is longer)
current liability?
an obligation that will be satisfied within the next operating cycle or within one year
liquidity?
the ability of a company to pay its debts as they come due
working capital?
current assets - current liabilities
current ratio?
current assets/current liabilities
gross profit formula?
sales - the cost of goods sold
profit margin?
net income / sales
chart of accounts?
a numerical list of all accounts used by a company
general ledger?
a device containing all of the accounts
trial balance?
a list of each account and its balance
accrued revenue?
when a company has recorded a revenue but will receive cash at a later date, accounts receivable
accrued expense?
record an expense but will pay cash at a later date, accrued salaries, wages, and benefits
deferred revenue?
the company receives cash prior to a sale, someone buys a gift card
prepaid expense?
the company pays cash prior to incurring an expense, paying for supplies in advance
historical cost?
the amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets
current value?
the amount of cash or its equivalent that could be received by selling an asset currently
accrual basis?
revenues are recognized when a performance obligation is satisfied and expenses must be recorded when they occur
revenue recognition principle?
REVENUES ARE RECOGNIZED WHEN A PERFORMANCE OBLIGATION IS SATISFIED
matching principle?
the association of revenue of a period with all of the costs necessary to generate that revenue
adjusting entries?
journal entries made at the end of a period by a company using the accrual basis of accounting
deferral?
cash has been paid or received but the expense or revenue has not yet been recognized
deferred expense?
an asset resulting from the payment of cash before the incurrence of the expense
deferred revenue?
a liability resulting from the receipt of cash before the recognition of revenue
accrual?
cash has not yet been paid or received but the expense has been incurred or revenue recognized
accrued liability?
a liability resulting from the recognition of an expense before the payment of cash
accrued asset?
an asset resulting from the recognition of revenue before the receipt of cash
permanent/real account?
a balance sheet account because they are permanent and are not closed out at the end of a period
nominal account?
name of revenue, expense, and dividend accounts because they are temporary and are closed out at the end of a period
closing entries?
journal entries made at the end of the period to return the balance in all nominal accounts to zero and transfer the net income and dividends to retained earnings
merchandise inventory?
the account wholesalers and retailers use to report inventory held for resale
raw materials?
the inventory of a manufacturer before the addition of any labor or manufacturing overhead
work in process?
the cost of unfinished products in a manufacturing company
finished goods?
a manufacturer’s inventory that is complete and ready for sale
gross profit?
net sales - cost of goods sold
sales revenue?
a representation of the inflow of assets from the sale of a product
net sales?
sales revenue - sales returns/allowances/discounts
cost of goods available for sale?
beginning inventory + cost of goods purchased
cost of goods sold?
cost of goods available for sale - value of ending inventory
perpetual system?
the inventory account is increased at the time of each purchase and decreased the time of each sale
periodic system?
the inventory account only at the end of the period
gross profit ratio?
gross profit / net sales
specific identification method?
an inventory costing method that relies on matching unit costs with the actual units sold
weighted average cost method?
an inventory costing method that assigns the same unit cost to all units available for sale during the period
weighted average formula?
COGAS/units available for sale
FIFO method?
an inventory costing method that assigns the most recent costs to ending inventory
LIFO method?
an inventory costing method that assigns the most recent cost to the cost of goods sold
LIFO liquidation?
the result of selling more units than are purchased during the period, which can have negative tax consequences if a company is using LIFO
LIFO conformity rule?
the IRS requirement that when LIFO is used on a tax return,m it must be used in reporting income to stockholders
LIFO reserve?
the excess of the value of a company’s inventory stated at FIFO over the value stated a LIFO
replacement cost?
the current cost of a unit of inventory
inventory profit?
the portion of the gross profit that results from holding inventory during a period of rising prices
lower-of-cost-or-market rule?
a conservative inventory valuation approach that is an attempt to anticipate declines in the value of inventory before its actual sale
inventory turnover ratio?
a measure of the number of times inventory is sold during the period
the formula for inventory turnover ratio?
COGS/average value of inventory
