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Complete list of Terms and Definitions for Test1

Terms Definitions
t-account for supplies left side: beg balance + sup purchased(normal ending balance on this side)right side: -supplies used (sup expense)
depreciation a non-cash expense; the cost of multi-year asset to expense, over the asset's "useful" life. an estimated expense
accrued revenue acct, rent, int. receivable service, rent, int. revenue
income statement -most important financial statement-must be prepared first in order to calculate retained earnings-reports revenue earned-expenses incurred-covers PERIOD OF TIME
order of assets listed in order of liquidity:cashshort-term investmentsaccounts receivable and notes receivableinventoryprepaid expenses
not all cash inflows are revenues and not all cash outflows are expenses why does cash not equal net income?
t-accounts for accounts payable left side: -cash paidright side: beg balance + cr. purchases from vendor(normal ending balance also on this side)
formula for owners equity begining o/e+/- net income(loss)-dividends+investments------------ending o/e
TRUE t/fAJE's always involve one asset or liability and one revenue or expense. NEVER CASH!!!
Falseyou NEVER make AJE when using the cash basis! t/fmake AJE's when using the cash basis; does not apply to accrual basis of accounting
revenue increases retained earnings; sometimes recorded but cash is NOT received until later (interest receivable, owners investment, borrow on notes payable)
Time period concept divide the life of a business into equal reporting periods and measure net income each period; makes financial statement comparable from period to period. accounting period must be: calender, fiscal(end on day other than dec 31) and interim
accrued expense cash not paid until later; the expense has ben INCURRED
normal balance sides for debits and credits left side:DividendsExpensesAssetsright side:LiabilitiesOwners equityRetained earnings
accrued revenue cash not received until later; the revenue has been EARNED
expenses decrease retained earnings; sometimes recorded but no cash is paid (depreciation) or cash is paid later (interest payable)ex: pay dividends and buy land
accumulated depreciation contra asset account; credit balance. leave historical cost in the asset account
permanent accounts assets, liabilities, common stock, retained earnings
formula for net income(loss) retained earnings- expenses
asset, liability prepaid expenses are _____ and unearned revenue is a ______.
statement of retained earnings -includes information about dividends-covers the same period of time as the income statements
t-account for accounts receivable left side: beg balance + cr. sales to customer(normal ending balance also on this side)right side: -coll from cust. (cash receipts)
FALSEyou NEVER close out permanent accounts t/f ALWAYS close permanent accounts; these carry over from period to period and are all balance sheet accounts
the HOW MUCH of the revenue principle record revenue equal to the fair market value of the goods or services exchanged
5 types of adjusting entries 1. supplies and prepaid expense2. depreciation3. accrued expense4. accrued revenue5. unearned revenue
key words for accounts payable "purchases on account""purchased on account""payments on account""paid on account"
owners equity consists of common stock and retained earnings
formula for retained earnings begining r/e-dividends+/- net income(loss)----------------ending r/e
Matching Principle revenue must be recorded in period in which goods are sold or service is performed and EXPENSES must be deducted with the period in wich revenus was earned
prepaid expense amounts that will be used up in the near future
accrual cash flow occurs AFTER the expense or revenue is recorded on the books (add rev/exp now and cash later)
Supplies and Prepaid expense Supplies Expense supplies Rent, Ins, Adv expense Prepaid rent, ins, adv.
current ratio current assets/current liabilities-one way to evaluate liquidity-should be greater than 2:1
example of liabilities -salary payable-unearned revenue-accounts payable-notes payable
true t/fadjusted trial balance amounts appear on the financial statements
examples of assets -cash-accounts receivable-property-plant-equipment-prepaid expenses
debt ratio total liabilities/total assets-one way to evaluate risk-also useful as a measure of the company's ability to pay both current and long-term debt
accrued expense salary, interest expense salary, interest payable
net loss expenses>revenue
unearned revenue unearned revenue service revenue
FALSEdebits should always equal credit t/f on the adjusted trial balance, debits should not equal credits
carrying value (book value) formula cost-accumulated depreciation= book value
the WHEN of the revenue principle recorded revenue when the earning process is completed-the service has been performed or the goods delivered
net income revenue>expenses
order of liabilities listed in order of liquidity:notes payableaccounts payablecurrent portion of long-term debtwages, taxes, interest payableunearned revenue
deferral cash flow occurs BEFORE the expense or revenue is recorded on the books (cash now and defer rev/exp till later)
reasons for adjusting -some transactions affect more than one accounting period-bring revenue and expense accounts to correct ending balances ; make net income comparable from period to period-bring balance sheet accounts to correct ending balances
key words for accounts receivable "sales on account""sold on account""collections on account""collected on account"assetcustomer
accrual basis revenue is recorded when EARNED and NOT when cash is received; expenses are recorded as incurred and not when cash is paid
cash basis revenue is recorded when RECEIVED IN CASH and expenses recorded when CASH IS PAID
balance sheet -(snap shot)-also known as the statement of financial position-shows that A=L+Oprepared as of a specific date
temporary accounts revenue, expenses, dividends
order of closing entries 1. close everything with a CREDIT balance (d-rev and c-r/e)2. close everything with a DEBT balance (d-r/e and c-expense)3. close dividends to retained earnings (d-r/e and c-div)
closing entries bring temp accounts to a zero balance and then transfer net income (or loss) to retained earnings.
revenue principle tells the accountant WHEN to record revenue and HOW MUCH revenue to record.
current assets cash or assets that will be converted into cash or used up within 1 operating cycle of 1 year
the accounting equation assets=liabilities+ owners equityA-O=LA-L=O
Depreciation Depreciation expense accumulated depreciation