Accounting Cycle and Adjustments

These flashcards cover key terms and definitions related to the accounting cycle and adjustments, including concepts such as the closing process and various types of entries.

Accounting Cycle

A series of steps used by accountants to categorize, classify, and summarize financial information.

Adjusting Entries

Entries made at the end of an accounting period to allocate income and expenses to the correct period.

Closing Process

The procedure of closing temporary accounts at the end of a financial period to prepare for the next accounting period.

Net Profit Margin Ratio

A ratio that shows the percentage of revenue that has turned into profit.

Accruals

Revenues earned or expenses incurred that have not been recorded in the accounts.

Deferrals

Cash transactions that are recorded before revenue or expense recognition.

Prepaid Expenses

Payments made in advance for goods or services that will be received in the future.

Unearned Revenue

Money received by an entity for services not yet performed or goods not yet delivered.

Depreciation

An allocation method used to allocate the cost of a tangible asset over its useful life.

Temporary Accounts

Accounts that record financial transactions for a specific accounting period and are closed at the end of that period.

Permanent Accounts

Balance sheet accounts that are not closed at the end of the accounting period.

Retained Earnings

The cumulative amount of net income that a company retains for reinvestment rather than paying it out as dividends.