Exam 2: Ch. 3 & 4 Vocabulary Flashcards
Record revenues when goods and services are provided to customers, and record expenses for the costs used to provide those goods and services to customers
Accrual-basis accounting
Record revenues at the time cash is received and record expenses at the time cash is paid. If cash is not received or paid, no transaction is recorded
Cash-basis accounting
Entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities) that have occurred during the period but that we have not yet recorded
Adjusting entries
A company pays cash (or has an obligation to pay cash) to acquire an asset that is not used until a later period
Prepaid expenses
A company receives cash in advance from customers, but goods and services won’t be provided until a later period.
Deferred revenues
A company incurs costs in the current period but hasn’t yet paid cash for those costs.
Accrued expenses
A company provides products or services but hasn’t yet received cash.
Accrued revenues
the process of allocating the cost of a long-term asset to expense over its useful life
Depreciation
an account with a balance that is opposite to that of its related accounts
Contra account
an asset’s original cost less accumulated depreciation (AKA carrying value because it’s the amount the asset is “carried” in the books)
Book value
a list of all accounts and their balances after we have updated account balances for adjusting entries
Adjusted trial balance
groups a company’s assets into current assets and long-term assets and separates liabilities into current liabilities and long-term liabilities
Classified balance sheet
they provide a benefit within the next year
Current assets
how quickly an asset can be converted to cash
liquidity
average time it takes to provide a service or manufacture products to the time the company collects customers’ cash
Operating cycle
they provide a benefit for more than one year
Long-term assets
investments in another company’s debt or stock
Long-term investments
long-term productive assets used in the normal course of business such as land, buildings, equipment, and machinery
Property, plant, and equipment
assets that lack physical substance but have long-term value to a company, such as patents, copyrights, trademarks, and franchises
Intangible assets
they are due within one year of the balance sheet date
Current liabilities
amounts owed for previous purchases of supplies on account
Accounts payable
amounts owed to employees
Salaries payable
amounts owed to the utility company
Utilities payable
the amount of interest a company owes to its lenders but has not yet paid.
interest payable
they are due in more than one year
Long-term liabilities
all accounts that appear in the balance sheet; account balances are carried forward from period to period
Permanent accounts
all revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the Retained Earnings account at the end of the period
Temporary accounts
entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account
Closing entries
a list of all accounts and their balances at a particular date after we have updated account balances for closing entries
Post-closing trial balance
the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources
occupational fraud
the three elements present for every fraud— motivation, rationalization, and opportunity
Fraud triangle
a company’s plans to (1) safeguard the company’s assets and (2) improve the accuracy and reliability of accounting information
Internal controls
known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor–client relations and internal control procedures
Sarbanes-Oxley Act
designed to keep errors or fraud from occurring in the first place
Preventive controls
Authorizing transactions, recording transactions, and controlling related assets should be separated among employees
Separation of duties
designed to detect errors or fraud that have already occurred.
Detective controls
two or more people acting in coordination to circumvent internal controls (more difficult to detect and typically several times more severe than fraud involving one person)
Collusion
currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), credit card and debit card sales, and cash equivalents.
Cash
short-term investments that have a maturity date no longer than three months from the date of purchase (common examples are money market funds, Treasury bills, and certificates of deposit)
Cash equivalents
matching the balance of cash in the bank account with the balance of cash in the company’s own records
Bank reconciliation
cash receipts of the company that have not been added to the bank’s record of the company’s balance
Deposits outstanding
checks the company has written that have not been subtracted from the bank’s record of the company’s balance
Checks outstanding
company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company
Purchase cards
small amount of cash kept on hand to pay for minor purchases
Petty cash fund
cash that is not available for current operations; examples include cash set aside for specific purposes such as repaying debt, purchasing equipment, or making future investments
restricted cash
