1. A debt security represents a credit relationship with another company or governmental entity
that typically pays interest for a fixed period.
2. An equity security represents stock ownership in another company th
Plant Assets, Natural Resources, and Intangibles
1. Plant assets are long-lived, tangible assets used in the operation of a business. Examples
include land, buildings, equipment, furniture, and automobiles.
2. The historical cos
1. Accounts receivable represent the right to receive cash in the future from customers for
goods sold or for services performed. Accounts receivable are usually collected within a short
period of time such as 30 or
Internal Control and Cash
1. Internal control is the organizational plan and all the related measures adopted by an entity
to safeguard assets, encourage employees to follow company policies, promote operational
Completing the Accounting Cycle
1. The financial statements are prepared from the adjusted trial balance.
2. The income statement reports revenues and expenses and calculates net income or net loss for
the time period.
3. The st
The Adjusting Process
1. Cash basis accounting records revenues only when cash is received and expenses only when
cash is paid. Accrual basis accounting records revenues when earned and expenses when
2. Accrual basis a
1. The consistency principle states that businesses should use the same accounting methods and
procedures from period to period.
2. The disclosure principle requires that a company must report enough inform
1. A merchandiser is a business that sells merchandise, or goods, to customers. The
merchandise that these types of businesses sell is called merchandise inventory.
2. Merchandisers are often identified
Recording Business Transactions
1. The three categories of the accounting equation are assets, liabilities, and equity. Assets include
Cash, Accounts Receivable, Notes Receivable, Prepaid Expenses, Land, Building, Equipment,
Financial Statement Analysis
1. The three main ways to analyze financial statements are horizontal analysis, vertical analysis,
and ratio analysis.
2. An annual report (10-K) is a report required by the Securities and Exchange