Exam2 Defintions Flashcards
equation that shows a company’s resources (assets) equal creditors’ and owners’
claims to those resources (liabilities and stockholders’ equity).
Accounting Equation
record revenue when we earn them and record expenses with related
expenses, regardless of when cash is received or paid.
Accrual-basis accounting
record revenues at the time cash received and expenses at the time cash is paid.
Cash Basis Accounting
The rules of financial accounting
Generally accepted accounting principles (GAAP)
– record revenue in the period in which we earn it.
Revenue Recognition principle
recognizing expenses in the same period as the revenues they help generate.
Matching Principle
Resources owned by a company
Assets
Amounts owed to creditors
Liabilities
Owners’ claims to resources
Stockholders’ Equity
The amounts earned from selling products or services to customers
Revenues
The costs of providing products and services
Expenses
An economic event that initiates the accounting process of recording it in the
company’s accounting system.
Business Transaction
- the specific time period (beginning and end) for which the accounts are aggregated,
balanced, and the financial statements are prepared
Accounting Period
summary of the effects of all transactions related to a particular item over a period of time.
Account
a list of all account names used to record transactions of a company
Chart of accounts
periodic reports published by the company for the purpose of providing
information (communicate) to external users.
Financial Statement
- financial statement that reports the company’s revenues and expenses over an interval
of time.
Income statement
financial statement that summarizes the changes in stockholders’
equity over an interval of time
Statement of stockholders’ equity
- financial statement that presents the financial position of the company on a particular
dat
Balance Sheet
financial statement that measures activities involving cash receipts and cash
payments over an interval of time.
Statement of cash flows
All accounts used to record the company’s transactions
General Ledger
a chronological record of all transactions affecting a firm
Journal
the process of transferring the debit and credit information from the journal to individual
accounts in the general ledger.
Posting
A list of all accounts and their balances before adjusting entries are
completed, showing the total debits and credits.
Unadjusted Trial Balance
a list of all accounts and their balances after the completion of adjusting entries,
showing the total debits and credits.
Adjusted Trial Balance
to record events that have occurred but that have not been recorded, such recording
insurance expense at the end of the month from a prepaid policy.
Adjusting entries
entries that transfer balances of all temporary accounts (revenues, expenses, and
dividends) to the balance of the retained earnings account
Closing Entries
revenues, expenses, and dividends are closed out at the end of each accounting
period and transferred to Retained Earnings so that the new period begins with a zero (0) balance for these
accounts.
Temporary Accounts
the balance sheet accounts where the balances are carried forward from period to
period.
Permanent Accounts
liquid assets owned by the company. (debit, asset, balance sheet)
Cash
amounts the company expects to collect from customers based on the
delivery of service or products. (debit, asset, balance sheet)
Accounts Receivable
costs of assets acquired in one period that will be expensed in a future period.
(debit, asset, balance sheet)
Pre-paid Expenses
– the cost of the merchandise purchased but not yet sold to customers. (debit, asset,
balance sheet)
Inventory
the cost of supplies (pens, paper, toner, etc.) used in the operation of a business. (debit,
asset, balance sheet)
Supplies
Promise to pay cash in the future to creditors when purchasing supplies or
materials. (credit, liability, balance sheet)
Accounts Payable
Total amounts owed to creditors for loaning money to the company. (credit,
liability, balance sheet)
Notes Payable
cash in advance from a customer for products or services to be provided in
the future. (credit, liability, balance sheet)
Deferred Revenue
Amount shareholders have invested in the business. (credit, liability, balance
sheet)
Common Stock
cumulative amount of net income earned over the life of the company that
has not been distributed to stockholders as dividends. (credit, liability, balance sheet)
Retained Earnings
cumulative amount of depreciation expensed against a particular
asset, such as a vehicle. (credit, contra asset, balance sheet)
Accumulated Depreciation
historical cost of an asset, such as equipment, less the accumulated depreciation.
Book Value
- the amounts earned from selling products or services to customers. (credit, revenue,
income statement)
Revenues
the costs of providing products and services. (debit, expense, income statement)
Expenses
– the process of allocating the cost of an asset, such as equipment, to
expense over the useful life of the asset. (debit, expense, income statement)
Depreciation Expense
- the difference between revenues and expenses. (calculation: revenues – expense,
income statement)
Net Income
– cash payments to stockholders (owners). (debit, no major category, stmt. of
stockholders’ equity)
Dividend
