Untitled Flashcards Set

Book Value

Historical Cost minus Accumulated Depreciation.

Nominal Accounts

Temporary accounts such as revenues, expenses, and dividends that are closed at the end of an accounting period.

Chronological Order of the Accounting Cycle

1. Analyze transactions, 2. Journalize transactions, 3. Post to ledger accounts, 4. Prepare an unadjusted trial balance, 5. Make adjusting entries, 6. Prepare an adjusted trial balance, 7. Prepare financial statements, 8. Close accounts, 9. Prepare a post-closing trial balance.

Artificial Time Period

A set period (month, quarter, year) used to report financial information.

Time Period Assumption

The assumption that a company's financial life can be divided into artificial time periods for reporting purposes.

Cash Basis Accounting

Revenues and expenses are recorded when cash is received or paid.

Accrual Basis Accounting

Revenues and expenses are recorded when they are earned or incurred, regardless of cash flow.

Revenue Recognition Assumption

Revenue is recorded when it is earned, not when cash is received.

Expense Recognition Assumption

Expenses are recorded when incurred, matching them with the revenues they help generate (Matching Principle).

Interest Calculation Formula

Interest = Principal × Rate × Time.

Net Income for a Merchandising Company

Net Income is calculated as Gross Profit minus Operating Expenses.

Cost of Goods Sold (COGS) Calculation

COGS = Beginning Inventory + Purchases - Ending Inventory.

Operating Income Calculation

Operating Income = Gross Profit - Operating Expenses.

Gross Profit

Gross Profit equals Sales Revenue minus Cost of Goods Sold.

n/30

Means net payment is due in 30 days.

FOB Shipping Point

Buyer pays for the freight; title transfers at shipping point.

FOB Destination

Seller pays for the freight; title transfers when goods reach the buyer.

Adjusting Journal Entry Requirements

Adjusting entries involve accruals and deferrals.

Purpose of an Income Statement

Shows revenues and expenses, leading to net income.

Closing Entries Process for Revenues

Debit Revenue and Credit Income Summary.

Post-Closing Trial Balance Importance

Ensures only permanent accounts remain after closing entries.

Classified Balance Sheet

A balance sheet organized into categories: Assets, Liabilities, and Equity.

Classifications of a Balance Sheet

Assets are classified into Current, Long-term, and PPE; Liabilities into Current and Long-term; Equity into Common Stock and Retained Earnings.

Sole Proprietorship

A business owned by a single individual with unlimited liability.

Corporation

A separate legal entity that provides limited liability to its owners.

PPE Account

Property, Plant, and Equipment account includes land, buildings, and equipment, with accumulated depreciation reducing its value.

Contra Revenue Account

A revenue account that reduces total revenue, found under Revenues in the income statement.

Liquidity of Assets

Liquidity refers to how quickly an asset can be converted to cash, indicating financial flexibility.

Freight Costs with FOB Terms

Freight costs depend on FOB terms; buyer or seller pays based on terms of shipping.

Columns in a Worksheet

Include Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet.

Post-Closing Trial Balance Difference

Only permanent accounts remain, ensuring no temporary accounts carry over.