Accounting Analysis Test

Account

one who is concerned with the design of the system of records, the preparation of reports based upon the recorded data, and the interpretation of the reports.

Accountant

a device for recording the changes (increases or decreases) in the fundamental accounting elements.

Account balance

the difference between the total debits and the total credits in an account.

Accounting

a language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial data.

Accounting cycle

the process involved in journalizing, posting to the ledger, taking a trial balance, preparing statements, making adjusting and closing entries, and preparing a post-closing trial balance.

Accounting equation

assets equal Liabilities plus Owner's Equity.

Accounts payable

an unwritten promise to pay creditors for property, such as merchandise, supplies, or equipment, purchased on credit, or for services received on credit.

Accounts receivable

an unwritten promise by a customer to pay, at a later date, for goods sold or services rendered.

Accounts receivable turnover

measures how many times per year receivables are collected. Calculation: net credit sales divided by average accounts receivable.

Average accounts receivable

(Beginning accounts receivable + Ending accounts receivable) divided by 2.

Accrual accounting

recording in each fiscal period applicable expenses, whether paid or not, and income earned, whether collected or not.

Accrued expense

an expense incurred in operating a business during an accounting period, but not yet paid.

Accrued income

income actually earned during an accounting period but which will not be received until a future period.

Acid-test ratio (quick ratio)

quick assets divided by current liabilities.

Activity analysis

measures how efficiently a firm is utilizing its assets.

Adjusted trial balance

a trial balance taken after adjusting entries have been recorded.

Adjusting entries

entries made at the conclusion of a fiscal period to bring accounts up to date.

Age of accounts receivable

measures the average time required to collect receivables. Calculation: 365 days divided by Accounts Receivable Turnover.

Age of inventory

measures the average time required to sell inventory. Calculation: 365 days divided by Inventory Turnover.

Allowance for bad debts (allowance for doubtful accounts)

a contra-asset account utilized to accumulate totals against accounts receivable.

Assets

property of monetary value owned by a business.

Bad debts expense (uncollectible accounts expense; loss from uncollectible accounts)

accounts receivable that are uncollectible.

Balance sheet (statement of financial position; statement of financial condition)

a formal financial statement illustrating the assets, liabilities, and owner's equity of a business as of a specific date.

Balance sheet common-size statements/percentage method

express the major items in the balance sheet as a percent of the total assets and compare with previous fiscal periods.

Balance sheet comparative forms

record the balance sheet data for two or more comparable periods on the same form so that the information can be readily compared.

Banker's method/360 day method

a method of computing interest based on the assumption that there are 360 days in a year.

Bank statement

an itemized listing prepared by the bank of additions to the subtractions from a depositor's account.

Bank statement reconciliation

the process by which the depositor attempts to reconcile the bank statement balance with the checkbook balance.

Bookkeeper (information processor)

prescribed manner.

Bookkeeping

the recording of financial information in a prescribed manner.

Book value (undepreciated cost)

the cost of a fixed asset less its accumulated depreciation.

Business papers (source documents)

the first record of a business transaction, such as check stubs, receipts, sales invoices, purchase invoices, cash register tapes, etc.

Calendar year

a twelve-month period beginning January 1st and concluding on December 31st.

Cancelled check

a check which has been paid by the bank and returned to the drawer for recordkeeping.

Capital (net worth; owner's equity; proprietorship)

an owner's financial interest in a business; the amount by which the total assets exceed the total liabilities.

Cash

coins, currency (paper money), checks, credit card receipts and money orders received from others, as well as money deposited in the bank.

Cash basis accounting

an accounting practice in which revenue is not recognized in the accounting records until received and in which expenses are not recognized until paid.

Cash discounts

discounts from quoted prices as an inducement for prompt payment of invoices.

Cash disbursements (cash payments)

money and money substitutes paid.

Cash short and over

a special ledger account that is used to keep track of unexplained shortages or overages of cash.

Certified Public Accountant/C.P.A.

an individual possessing a college education, having practical experience in accounting and who has passed a comprehensive state examination in order to be certified to practice public accounting in that state.

Chart of accounts

a list of all the account titles and the account numbers assigned to them.

Checks

a piece of commercial paper drawn on funds in a bank account and payable on demand.

Check stub

a form on which information is recorded by the drawer of a check concerning the check drawn; a source document.

Chronological

in accounting, to record in order of time.

Classifying

the sorting of the many business transactions in an orderly and systematic manner.

Closing entries

entries made at the end of each reporting period to transfer the balances of the temporary owner's equity accounts to the permanent owner's equity account and to reduce the balance in the temporary owner's equity accounts to zero in preparation for the next accounting period.

Compound journal entry

an accounting entry that involves more than two accounts.

Contra account

an account designed to accumulate totals to offset a related account.

Credit

the right side of a standard account.

Credit balance

a condition that occurs when the total of the credits in an account is larger than the total of the debits in that account.

Credit memorandum

a source document that grants credit to a buyer for purchase return or purchase allowance; items the bank adds to the account balance.

Creditor

a business or individual to whom a debt is owed.

Current ratio

current assets divided by current liabilities.

Current assets

cash or other assets that will be converted into cash or consumed within one year.

Current liabilities

debts of a business that are generally paid within one year.

Data entry (recording)

the committing of a business transaction and the events surrounding such into writing.

Debit

the left side of a standard account.

Debit balance

a condition that occurs when the total of the debits in an account is larger than the total of the credits in that account.

Debit memorandum

items the bank deducts from the account balance.

Debtor

the business or individual who owes a debt.

Deposits in transit

deposits that have been made and added to depositor's checkbook, but have not yet been listed on the bank statement.

Deposit slip (deposit ticket)

a bank form that lists those cash items (currency and coin) and individual checks to be deposited.

Deposit ticket

see Deposit slip

Depreciation

the loss in value of a fixed asset due to wear and tear and the passage of time; or, a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life.

Depreciation expense

that portion of the original cost of a fixed asset that is assigned as an expense to the reporting period expected to benefit from its use.

Disbursement

a payment.

Discount period

a specific number of days during which a discount is available if the account is paid.

Dishonored check

a check not paid by the bank when properly presented.

Double entry accounting

the process of recording equal debits and credits for a single business transaction.

Dr.

the abbreviation for debit.

Drawing account

a separate owner's equity account in which withdrawals of cash or other assets by the owner for personal use are recorded.

Employee

one who is under the control and direction of an employer with regard to the performance of employment.

E.O.M.

end of month.

Expenses

a decrease in assets, other than withdrawals by the owner, which result from efforts to produce revenues.

Face of note

the principal sum the maker of a note promises to pay.

Federal income tax withholding

the amount that an employer must withhold from an employee's pay for income tax purposes.

Federal Insurance Contributions Act/F.I.C.A.

a federal act that requires most employers and employees to pay taxes to support the federal social security program.

Federal Unemployment Tax Act/F.U.T.A.

a federal act imposed upon each employer for financing the administration costs of the federal and state unemployment compensation programs.

F.I.C.A.

abbreviation for Federal Insurance Contributions Act.

Fiscal period

a period of time covered by an income statement.

Fixed assets

property of a relatively permanent nature used in the operation of a business and not intended for resale.

Fixed liabilities

liabilities that are not due and payable within one year.

General journal

a book of original entry in which any business transactions is recorded in chronological order.

General ledger

the book of accounts.

Gross earnings

income before any deductions have been made.

Gross margin

net sales minus the cost of goods sold.

Gross profit

see Gross margin.

Gross profit percentage

gross profit divided by net sales.

In balance

a condition in which the total of the debits and the total of the credits are equal in an account.

Income

an inflow of assets as a result of selling a product or providing a service.

Income statement

a formal financial statement which presents the income, expenses, and resulting net profit or net loss for a given period.

Income statement common-size statements

express the major items in the Income Statement as a percent of Net Sales and compare with previous fiscal periods.

Income statement comparative forms

record the income statement data for two or more comparable periods of the same form so that the information can be readily compared.

Income tax

a tax levied on the earnings of individuals and businesses by federal, state, and local governments.

Independent contractor

any person who agrees to perform a service for a fee and who is not subject to the control of those for whom the service is performed.

Intangible assets

those assets that cannot be touched or grasped (examples include patents, copyrights and goodwill).

Interest

money paid for the use of money.

Interpreting

explaining the significant events of developments that occur, usually taking the form of analysis and comparisons.

Inventory

goods purchased for resale at a profit.