Accounting terminology Flashcards

Terms Definitions
 
CLASSIFY: Retained earnings
Equity
Interest Expense...
Expense, Income Statement
outputs
Financial statements and represent summary information.
Adequate Disclosure
Financial statements, including related footnotes and other disclosures, should contain all relevant data a reader needs to understand the financial condition and performance of a business. Changes in the use of accounting methods from one period to the next are described in the notes to the financial statements. material litigation involving the corporation is described in a footnote.
posting
the process of transferring amounts from the journal to the proper general ledger account
APB opinions
official pronouncements that were intended to be based mainly on research studied and be supported by reason and analysis.
assets
resources with future benefits that are owned or controlled by a company
Proprietorship
A business owned by one person.
earnings per share
net income-preferred stock dividends/average common shares outstanding
Equity to Assets Ratio
Stockholders' Equity / Assets
Balance sheet
Itemized list of assets, liabilities and owners equity, showing financial position of a business on a certain date
accounts payable ledger
subsidiary ledger that stores transaction data of individual suppliers.
Operating assets
AR, inventory, plant and equipment, all other assets held for operating purposes
Corporation Proprietorship Partnership
Name 3 major financial institutions
adjusting entries
Journal entries recorded to update general ledger accounts at the end of a fiscal period.
patent
A federal government grant giving the holder the exclusive right for 20 years to produce and sell an invention
Examples of Liability accts
Notes payable, accounts payable
Expenses
increase by debit and decrease by credit
Allowance of Depreciation
An account used to accumulate decreases in value of fixed assets
Withholding Allowance
a deduction from total earnings for each person legally supported by a taxpayer, including the employee.
increase of cost of goods sold
decrease in inventory.
blank endorsement
An endorsement consisting only of the endorser's signature
differential revenue
the difference in revenue between 2 difference alternative course of actions
pension expense
this represents a major percentage of profit for many companies
Service business
A business that preforms an activity for a fee
Patents
an exclusive right issued by the US patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.  
What are retained earnings
Earnings retained by the business
production budget
prepared after the sales budget and lists the nubmer of units that must be produced to meet sales demand and desired ending inventory level
Increased
an entry on the credit side of a liability account indicates that the account has been
double entry accounting
The recording of debit and credit parts of a transaction.
sales journal
A SPECIAL JOURNAL USED TO RECORD ONLY SALES OF MERCHANDISE ON ACCOUNT
acid-test ratio
or quick ratio. ( Cash and cash equivalents+short-term investments+current receivables) divided by current liabilities.
Committed Cost
Fixed Cost that are locked in because of previous management decision
commercial paper
this is a liability for amounts owed to investors
Fiscal Period
the length of time for which a business summarizes and reports financial information.
single step income statement
subtracting total expenses from total revenues
3 reasons a company may choose to estimate ending inventory using Gross Profit Method
Auditing reasonableness
Interim Inventory
Insurance Claims
The Entity Assumption
A business is separate from its owners or other businesses
stock loss
the loss where few units of stock that were missing on a physical stocktake
Straight Industries purchased a large piece of equipment from Curvy Company on January 2, 2006. Straight signed a note, agreeing to pay Curvy $400,000 for the equipment on December 31, 2008. The market rate of interest for similar notes was 8%. The presen
an amount more than $317,520
Net Present Value
1. Estimate amount and timing of cash flows 2. Calculate the present value of the future cash flows using the Cost of Capital 3. Compute the Present Value of Annuity for Future cash flows from investment (use CoC as intrest rate) to calculate what the gain from investment is worth today 4. Compute the Net Present Value 5. If NPV < 0, accept proposal
statement of owners' equity
simply shows the changes in equity for a period of time (the same period of time as that covered by the income statement)
On the Bank Reconciliation the Credit Memos are:
Added to the Book Balance
a journal entry which records revenue must include
a credit to the revenue account
How does operating lease affect:
a) Debt-to-equity
b) RoA
c) Current ratio
a) Lower D/E in operating
b) Higher ROA in operating
c) Higher current ratio in operating
What are Common Operating Activities for a Firm which effect the Cash Flow Statement
(1) Sales of goods and/or services to customers
(2) Costs of providing goods and/or services to customers
(3) Income tax payments
(4) Change in amount of operating current assets
(5) Change in amount of operating current liabilities
(6) Interest paid or received (under U.S. GAAP);
(7) Dividends received (under U.S. GAAP).
If a lease is classified as a capital lease, the lessee records an asset and a liability. Both the asset and the liability are valued at the:
a. Book value of the asset.
b. Fair market value of the asset.
c. Total of the lease payments agreed to in the le
d. Present value of the lease payments agreed to in the lease.
property
something owned
ROE
net income/total equity
debt
a company's total liablities
treasury stock
decreases total stockholder's equity
Interest Revenue
Money recieved for interest
basic accounting equation
assets=liabilities + owners equity
drawings
In accounting, the withdrawals from the profits of a business by owners in proprietorship and partnerships
asset
Anything of value that is owned.
a/r turnover ratio
convert sales into cash
creditors claims on the economic resources owned by the firm (debt)
liabilities
Wages
payments for manual labor that are made on an hourly or weekly basis
Notes Payable
Collective term for promissory notes owed by the enitiy (maker) who promises payment to other entities
revenue
an increase in owners equity resulting from the operation of a business
accounting records
organized summaries of a business's financial activities
Corporation
a business owned by stockholders that is an entity legally separate from its owners.
False
True/False: The current capital to be reported on a balance sheet is calculated as the capital account plus net income equals current capital
Adjustments
changes recorded on a worksheet to update general ledger accounts at the end of a fiscal period
Income Summary
-temporary account in which net income(loss) is transferred to owner's capital
tax base
The maximum amount of earnings on which a tax is calculated.
Differential Costs
Net difference in cost between two alternatives
aging account
method of identifying how long an account has been overdue; use color coded strips
income statement
financial stmt showing the revenue and expenses for a fiscal period
database management system
software that managest the database and controls the access and use of data by individual users and applications
Annual Report
A year statement of the financial condition, progress, and expectations of an organization.
Fixed Asset Turnover
Net sales revenue / average ((beginning+end)/2)) net fixed assets
purchases account
a temporary account used under the periodic inventory system to accumulate the cost of merchandise purchased for resale during an accounting period.
REVENUE RECOGNTTTON CONDTTTONS
Revenue should be recognized in financial accounting when it is earned
Liabilities
Creditors' claims to the assets of the business.
the retail price listed in a catalog or on an internet site
List Price
financial accounting foundation
selects members of FASB and Advisory council, funds their activities, and generally oversees the FASBs activities.
statement of stockholders' equity
A financial statement that shows changes in a corporation's ownership for a fiscal period
Business Ethics
The use of ethics in making business decisions.
Is computed on the amount of the principal only. Simple Interest= P x R x T. P for principal, R for interest rate, and T for time.
Simple interest
Process Cost System
Overhead Costs assigned to Work in Process Machining Department costs transferred out to Work in Process Assymble Department cost of completed work transfered to Finished Goods Inventory cost of goods sold transferred to Cost of Goods Sold
failure to record deprediation
overstate assets, liabilites is not effected, overstate SE
Credit Memo
Form that lists the details of a sales return or sales allowance
terms of sale
An agreement between a buyer and a seller about payment for merchandise
employee earnings record
a business form used to record details affecting payments made to an employee
What are equities?
Financial rights to the assets of a business.
Just in Time JIT
materials are purchased and units are produced only as needed to meet customer demand
hours allowed (SH)= (know: actual output, standard input ratio, and actual variable overhead rate)
(actual output) * (standard input ratio)
Generally Accepted Auditing Standards #5 (Standards of Fieldwork)
The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing and extent of further audit procedures.
total assets minus (total liabilities plus common stock)
equals retained earnings for a balance sheet
What is privately owned corp?
corp owned by family, small group, or single indiv. in which shares of ownership are not publicly sold
What is the chain of command in a business?
Proprietorships &amp; Partnerships = top managers are usually the owners
Corporation = Stockholders elect Board of Directors who appoint Managers
What are the two sections of a balance sheet?
1) left side - list of assets (resources of firm - cash, bldgs)
2) right side - list of liabilities and owner's equity (sources of resources used to acquire assets - claims against resources)
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