All companies need to count their entire inventory at least once a year whether they are using a
perpetual or periodic inventory system. This is called taking a physical inventory.
Companies using a perpetual inventory system use this informatio
Classified balance sheet
Current assets are cash and other resources that will be realized within one year of the balance
sheet date. They may be realized in cash or as items sold/consumed in the business. Four types of
current assets are
Accounts receivable are the amounts owed by customers on account. They result from the sale of
goods and services. These receivables are generally expected to be collected within 30 days or
so, and are classified as current assets. They are usually the mo
For a merchandising company, there is a net income (or loss) result when expenses are matched
with revenues. In a merchandising company, the main source of revenues is the sale of
merchandise. These revenues are called sales revenue. Expenses for a mercha
Internal control is the process that management designs and implements to help an organization achieve:
1. Reliable financial reporting
2. Effective and efficient operations
3. Compliance with relevant laws and regulations
Internal control is t
Time period assumption is an assumption that the economic life of a business can be divided into
artificial time periods: normally a month, a quarter, or year.
Time periods of less than one year are called interim periods. Most large companies are require
An account is an individual accounting record of increases and decreases in a specific, asset,
liability, or owners equity item. Debit means left side and credit means right side.
The double-entry system is a system that records the dual effect of each tr
Why is Accounting important? Why is it called the language of business?
Accounting is important because it communicates so much of the information that owners, managers,
and investors need to evaluate a company's financial performance
Accounting can benef
Closing the books is the process of journalizing and posting closing entries to update the capital account
and prepare the temporary accounts for the next periods postings.
Temporary accounts are revenue, expense, income summary, and drawings accounts who