Glossary Flashcards
Account
the record of the changes that have occurred in a particular asset, liability, or shareholders equity during a period. The basic summary device of accounting.
Accrual
An expense or a revenue that occurs before the business pays or receives cash. An accrual is the opposite of a deferral.
Accrual accounting
Accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash.
Accrued expense
An expense incurred but not yet paid in cash.
Accrued liability
a liability for an expense that has not yet been paid by the company.
Accrued revenue
A revenue that has been earned but not yet received in cash.
Accumulated Depreciation
The account showing the cumulative sum of all depreciation expense from the date of acquiring a plant asset.
Adjusted trial balance
A list of all the ledger accounts with their adjusted balances.
Carrying amount (of a plant asset)
The assets cost minus accumulated depreciation.
Cash-basis accounting
Accounting that records only transactions in which money is received or paid.
Chart of Accounts
list of a company accounts and their account numbers.
Classified balance sheet
A balance sheet that shows current assets separate from longterm assets, and current liabilities separate from long-term liabilities.
Closing entries
Entries the transfer the revenue, expense and dividend balances fromthese respective accounts to the Retained Earnings account.
Closing the books
The process of preparing the accounts to begin recording the next periods transactions. Closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and dividend accounts to zero. Also called closing the accounts.
Contra account
An account that always has a companion account and whose normal balance is opposite that of the companion account.
Credit
The right side of an account.
Current ratio
Current assets divided by current liabilities. Measures a companys ability to pay current liabilities with current assets.
Debit
the left side of an account.
Debt ratio
ratio of total liabilities to total assets. States the proportion of a companys assets that is financed with debt
Deferral
An adjustment for which the business paid or received cash in advance. Examples include prepaid rent, prepaid insurance and supplies.
Depreciation
allocation of the cost of a plant asset over its useful life.
Double-entry system
An accounting system that uses debits and credits to record the dual effects of each business transaction.
Journal
The chronological accounting record of an entitys transactions.
Ledger
The book of accounts and their balances.
Liquidity
Measure of how quickly an item can be converted to cash.
Long-term asset
An asset that is not current.
Long-term liability
A liability that is not a current liability.Net income as a of sales revenue - This ratio determines how much of the company_Ͷssales revenue ends up as net income.
Multi-step income statement
An income statement that contains subtotals to highlightimportant relationships between revenues and expenses.
Net income as a of sales revenue
This ratio determines how much of the companys sales revenue ends up as net income.
Operating cycle
Time span during which cash is paid for goods and serve goods and services, and these goods and services are sold to bring in cash.
Permanent accounts
Assets, liabilities and shareholders equity.
Posting
Copying amounts from the journal to the ledger.
Prepaid expenses
A category of miscellaneous assets that typically expire or get used up in the near future. Examples include Prepaid Rent, Prepaid Insurance and Supplies.
Return on sales
Net income divided by sales. Measures how much sales revenue ends up as net income.
Revenue principle
Governs when to record revenue and the amount to record.
Single-step income statement
Lists all revenues together and all expenses together; there is only one step in arriving at net income.
Temporary accounts
Revenues and expenses related to a limited period.
Time-period concept
Ensures that accounting information is reported at regularintervals.
Transaction
Any event that has a financial impact on the business and can be measured.
Unearned revenue
an obligation arising from receiving cash before providing a service.
Cost of goods sold
cost of the inventory the business has sold to customers. Also called cost of sales.
Net realizable value
the amount a business could get if it sold the inventory less the cost of selling it
Purchase return
a decrease in the cost of purchases because the buyer returned the
goods to the seller.
Purchase discount
a decrease in the cost of purchases earned by making an early
payment to the vendor.
Purchase allowance
a decrease in the cost of purchases because the seller has granted the buyer a subtraction (an allowance) from the amount owed.
Inventory turnover
ratio of cost of goods sold to average inventory. Indicates how rapidly inventory is sold.
Gross profit percentage
gross profit divided by net sales revenue. Also called the
gross margin percentage.
Cost of goods sold model
formula that brings together all the inventory data for the
entire accounting period:
Beginning inventory + purchases = goods available for sale.
Then, goods available for sale – ending inventory = cost of goods sold.
Gross margin
sales revenue minus cost of goods sold. Also called the gross profit.
Gross profit
sales revenue minus cost of goods sold. Also called the gross margin.
Gross profit method
a way to estimate inventory based on a rearrangement of the cost of goods sold model:
Beginning inventory + net purchases = goods available for sale – cost of goods sold = ending inventory.
Also called the gross margin method.
Comparability
investors like to compare a company’s financial statements from one year to the next. Therefore, a company must consistently use the same accounting method each year.
Lower-of-cost-and-net-realizable-value (LCNRV) rule
Requires that an asset be reported in the financial statement at whichever is lower – its historical cost or its net realizable value.
Disclosure principle
A business’ financial statements must report enough information for outsiders to make knowledgeable decisions about the business. The company should report relevant, reliable, and comparable information about its economic affairs.
Consistency
a business must use the same accounting methods and procedures from period to period.
Periodic inventory system
An inventory system in which the business does not keep a continuous record of the inventory on hand. Instead, at the end of the period, the business makes a physical count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory.
Perpetual inventory system
An inventory system in which the business keeps a continuous record for each inventory item to show the inventory on hand at all times.
Specific-unit-cost method
Inventory costing based on the specific cost of particular
units of inventory. Also called the specific identification method.
Weighted-average-cost method
Inventory costing based on the average cost of inventory for the period. Weighted-average-cost is determined by dividing the cost of goods available by the number of units available. Also called the average cost method.
First-in, first-out (FIFO) cost (method)
Inventory costing method by which the first costs into inventory are first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases.
Accounting
The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision-makers.
Ethics
standards of right and wrong that transcend economic and legal boundaries. Ethical standards deal with the way we treat others and restrain our own actions because the desires, expectations, or rights of others and obligations to them.
Financial statements
business documents that report financial information about a business entity to decision makers.
Accounting Equation
the most basic tool of accounting:
Assets = Liabilities + Owners’ Equity.
Entity assumption
An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.
Stable-monetary-unit assumption
The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar purchasing power is relatively stable.
Cost assumption
Assumption that assets and services should be recorded at their actual cost when acquired.
Going concern assumption
Holds that the entity will remain in operation for the foreseeable future.
Faithful representation
The fundamental qualitative characteristic that accounting information is complete, free from bias, and without material error.
International Financial Reporting Standards (IFRS)
international accounting standards issued by the International Accounting Standards Board (IASB). Canada is converging Canadian GAAP with IFRS for Publicly Accountable Enterprises (PAEs) effective January 2011.
Generally accepted accounting principle (GAAP)
accounting standards, issued by the Canadian Institute of Chartered Accountants (CICA) Accounting Standards Board, that govern how accounting is practiced in Canada.
Relevance
the fundamental qualitative characteristic of accounting information that is capable of making a difference to the decision maker and has predictive or confirming value.
Proprietorship
a business with a single owner.
Publicly accountable enterprises (PAEs)
corporations that have issued or plan to issue shares or debt in a public market.
Private Enterprises (PEs)
corporations whose shares are privately held either by its founders and/or by family members.
Board of Directors
Group elected by the shareholders to set policy for a corporation and to appoint its officers.
Shareholder
a person who owns shares of stocks in a corporation.
Corporation
a business owned by shareholders. A corporation is a legal entity, an “artificial person” in the eyes of the law.
Limited liability partnership
a business organization in which the business partnership (not the partners) is liable for the partnership’s debts.
Partnership
an association of two or more persons who co-own a business.
Financial accounting
the branch of accounting that provides information to people outside the firm.
Management accounting
the branch of accounting that generates information for the
internal decision-makers of a business such as top executives.
Balance Sheet
List of an entity’s assets, liabilities, and owners’ equity as of a specific date. Also called the Statement of Financial Position Statement of financial position – another name for the Balance Sheet.
Asset
an economic resource that is expected to produce a benefit in the future.
Property, plant, and equipment
long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called plant assets, fixed assets, or tangible capital assets.
Plant assets
an asset, another name for property, plant, and equipment.
Capital assets
an asset, another name for property, plant, and equipment.
Fixed assets
an asset, another name for property, plant and equipment.
Inventory
an asset, merchandise that a company sells; also includes raw materials for use in a manufacturing process.
Accounts Receivable
an asset, amounts due from customers to whom a business has sold goods and or services.
Cash and cash equivalents
an asset, money and any medium of exchange that a bank accepts at face value.
Current assets
an asset that is expected to be converted to cash, sold or consumed during the next 12 months, or within the business normal operating cycle if longer than a year.
Liability
an economic obligation (a debt) payable to an individual or an organization outside of the entity.
Long-term debt
a liability that falls due beyond one year from the date of the financial
statements.
Long-term liabilities
liabilities that are due beyond one year after the balance sheet date.
Accounts Payable
a liability for goods or services purchased on credit and backed by the general reputation and credit standing of the debtor.
Current liability
a debt due to be paid within one year or within the entity’s operating cycle, if the cycle is longer than a year.
Shareholders’ equity
the shareholders’ ownership interest in the assets of a
corporation. Also called owners’ equity.
Owners’ equity
the claim of the owners of a business to the assets of the business. Also called capital, shareholders’ equity, or net assets.
Net assets
another name for owners’ equity.
Common shares
the most basic form of share capital. Common shareholders own a corporation.
Capital
another name for the owner’s equity of a business.
Contributed capital
the amount of shareholders’ equity that shareholders have
invested in the corporation.
Stock
shares into which the owners’ equity of a corporation is divided.
Income statement
a financial statement listing an entity’s revenues, expenses, and net income or net loss for a specified period. Also called the Statement of Operations or the Statement of Earnings.
Statement of earnings
another name for the Income Statement.
Revenues
increase in retained earnings from delivering public goods or services to
customers or clients
Expenses
decrease in retained earnings that results from operations; the cost of doing
business; opposite of revenues.
Profit
the excess of revenues over expenses.
Net earnings
another name for net income.
Net income
excess of total revenues over total expenses. Also called net earnings or net profits.
Statement of operations
another name for the Income Statement
Statement of retained earnings
summary of the changes in the retained earnings of a corporation during a specific period
Retained earnings
the amount of shareholders’ equity that the corporation of the
business has earned through profitable operation and has not given back to shareholders
Deficit
negative balance in retained earnings caused by net losses over a period of years.
Dividends
distributions (usually cash) by a corporation to its shareholders.
Statement of cash flows
Reports cash receipts and cash payments classified according to the entity’s major activities: operating, investing, and financing.
Operating activities
activities that create revenue or expense in the entity’s major line of business; a section of the Statement of Cash Flows. Operating activities affect the income statement
Investing activities
activities that increase or decrease the capital assets available to the business; a section of the Statement of Cash Flows.
Financing activities
activities that obtain from investors and creditors that cash needed to launch and sustain the business; a section of the statement of cash flows.
