Exam 2, Ch 4-5 Flashcards
Defn: A liability that does not need to be paid within one year or within the entity’s operating cycle, whichever is longer.
Long-term liability
Defn: Entries that transfer the revenues, expenses, and Owner, Withdrawals balances to the Owner, Capital account to prepare the company’s books for the next period.
Closing entries
Who pays for the shipping of goods when the transportation term is “FOB destination”?
The seller pays for shipping costs
A bill is another term for what?
Invoice
Defn: A discount that businesses offer to purchasers as an incentive for early payment.
Purchase discount
Defn: A balance sheet that places each asset and each liability into a specific category.
Classified balance sheet
Defn: A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries. It should include only permanent accounts.
Post-closing trial balance
________________ shows how capital changed during the period due to owner contributions, net income (or net loss), and owner withdrawals.
Statement of owner’s equity
Formula: Gross Profit Percentage
= Gross Profit / Net Sales Revenue
How are assets organized on a balance sheet?
In order of “liquidity”
What reports assets, liabilities, and owner’s equity as of the last day of the period?
Balance sheet
What is the order for preparing financial statements:
- Income statement
- Statement of owner’s equity
- Balance sheet
Defn: Expenses related to marketing and selling the company’s goods and services
Selling expenses
What account is used to summarize the net income or net loss for an accounting period?
Income summary
All accounts on the balance sheet are ____________ accounts.
Permanent accounts
Formula: Current ratio
= Total current assets / Total current liabilities
______ is the most liquid asset.
Cash
Formula: Net Sales Revenue
= Sales Revenue - (Sales Rtns & Allowances + Sales Discounts)
Defn: Measures the profitability of each sales dollar above the cost of goods sold.
[= gross profit / net sales revenue]
Gross Profit percentage
Defn: A measure of how quickly an item can be converted to cash.
Liquidity
Defn: Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals
Single-Step Income Statement
How are liabilities classified on the balance sheet?
As either “current” or “long-term”
Who pays for the shipping of goods when the transportation term is “FOB Shipping Point”?
The buyer pays for shipping costs
Defn: Long-lived, tangible asset, such as land, buildings, and equipment, used in the operation of a business.
Plant asset
Defn: The cost of the merchandise inventory that the business has sold to customers
Cost of Goods Sold
Defn: Reduction in the amount of cash received from a customer for early payment
Sales discount
Formula: Gross Profit
= Sales Revenue - Cost of Goods Sold
Defn: An account that is NOT closed at the end of the period - the asset, liability, and Owner, Capital accounts.
Permanent accounts
Defn: A liability that must be paid with cash or with goods and services within one year or within the entity’s operating cycle if the cycle is longer than a year.
Current liability
Defn: An account that relates to a particular accounting period and is closed at the end of that period - the revenues, expenses, Income Summary, and Owner, Withdrawals accounts
Temporary accounts
Formula: Operating Income
= Gross Profit - Operating Expenses
Defn: An asset that is expected to be converted to cash, sold, or used up during the next 12 months or within the business’s normal operating cycle if the cycle is longer than a year
Current asset
Defn: Decreases in the seller’s receivable from a customer’s return of merchandise or from granting the customer an allowance from the amount owed to the seller.
Sales returns and allowances
Defn: The amount a company has earned on sales of merchandise inventory after returns, allowances, and discounts have been taken out.
Net Sales Revenue
Defn: Measures the company’s ability to pay current liabilities from current assets.
Current ratio
Defn: Income statement format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.
Multi-Step Income Statement
Defn: The time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash.
Operating cycle
Defn: An asset that will not be converted to cash or used up within the business’s operating cycle or one year, whichever is greater.
Long-term asset
__________ account balances are carried forward into the next time period after the end of a specific accounting period.
Permanent accounts
Defn: Expenses, other than cost of goods sold, that are incurred in the entity’s major ongoing operations.
Operating expenses
Defn: Measures the results of the entity’s major ongoing activities.
[= gross profit - operating expenses]
Operating income
Defn: Expenses incurred that are not related to marketing the company’s goods and services
Administrative expenses
Defn: A temporary account into which revenues and expenses are transferred prior to their final transfer into the Owner, Capital account. Summarizes net income (or net loss) for the period.
Income Summary
Defn: An asset with no physical form that is valuable because of the special rights it carries.
Intangible asset
Defn: A step in the acocunting cycle that occurs at the end of the period consisting of journalizing and posting the closing entries to set the balances of the revenues, expenses, Income Summary, and Owner, Withdrawals accounts to zero for the next period.
Closing process
A balance sheet lists liabilities in what order?
The order in which they must be paid.
Defn: revenues or expenses that are outside the normal, day-to-day operations of a business, such as a gain or loss on the sale of plant assets or interest expense
Other Revenues and Expenses
Defn: Investments in bonds (debt securities) or stocks (equity securities) in which the company intends to hold the investment for longer than one year.
Long-term investment
Defn: The payment terms of purchase or sale as stated on the invoice.
Credit Terms
Defn: A seller’s request for payment from the purchaser.
Invoice
What are the (2) purposes of Closing Journal Entries?
- To make all of the Owner, Withdrawal, Expense, and Revenue accounts equal to zero
- To update the Owner’s Equity Account
What are the (2) types of asset categories as reported on a balance sheet?
- Current assets
2. Long-term assets
What usually makes up long-term assets? (3)
- Long-term investments
- Plant assets
- Intangible assets
___________ reports revenues and expenses and calculates net income or net loss for the time period.
Income Statement
