ACC 153 Key Terms

Ch. 1 - 4

Accounting

A system of analyzing, recording, and summarizing the results of a business’s operating, investing, and financing activities and then reporting them to decision makers.

Accounts

A standardized format that organizations use to accumulate the dollar effects of transactions on each financial statement item,

Balance Sheet

Reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.

Basic Accounting Equation

Assets = Liabilities + Stockholders’ Equity

Financial Statements

Reports that summarize the financial results of business activities

Generally Accepted Accounting Principles (GAAP)

The rules used in the United States to calculate and report information in the financial statements.

Income Statement

Reports the revenues less the expenses of the accounting period. Also referred to as Statement of Income, Statement of Profit and Loss, Statement of Operations.

International Financial Reporting Standards (IFRS)

The rules used internationally to calculate and report information in the financial statements

Sarbanes-Oxley Act (SOX)

A set of laws established to strengthen corporate reporting in the United States.

Separate Entity Assumption

States that business transactions are separate from and should exclude the personal transactions of the owners.

Statement of Cash Flows

Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.

Statement of Retained Earnings

Reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period.

Unit of Measure Assumption

The financial results of a company’s worldwide business activities should be measured and reporting using a single monetary unit, such as the U.S dollar.

Assets

Probable future economic benefits owned by the business as a results of past transactions.

Chart of Accounts

A summary of all account names and corresponding account numbers used to record financial results in the accounting system.

Classified Balance Sheet

A balance sheet that classifies assets and liabilities into current and other (long-term) categories.

Cost Principle

Requires assets to be initially recorded at the historical cash-equivalent cost, which is the amount paid or payable on the date of the transaction.

Credit

When used a noun, credit is the right side of an account; when used as a verb, credit is the act of recording the credit portion of a journal entry to a particular account.

Current Assets

Assets that will be used up or turned into cash within 12 months or the next operating cycle, whichever is longer.

Current Liabilities

Short-term obligations that will be paid in cash (or fulfilled with other current assets) within 12 month or the next operating cycle, whichever is longer.

Debit

When used as a noun, debit is the left side of an account; when used as a verb, debit is the act of recording the debit portion of a journa entry to a particular account.

Journal

A record of each day’s transactions.

Journal Entries

An accounting method of expressing the effects of a transaction on accounts in a debits-equal-credit format.

Ledger

A collection of records that summarizes, for each account, the effects of transactions entered in the journal.

Liabilities

Probable debts or obligation of the entity that result from past transactions, which will be fulfilled by providing assets or services.

Noncurrent

Long-term; assets and liabilities that do not meet the definition of current. More than 12 months

Stockholders’ Equity

The financing provided by the owners and the operations of the business. Also called: Owners’ Equity Shareholders’ Equity

T-Account

A simplified version of a ledger account used for summarizing transaction effects and determining balances for each account.

Transaction

An exchange or an event that has a direct economic effect on the asset, liabilities, or stockholders’ equity of a business.

Trial Balance

A list of all accounts with their balances to provide a check on the equality of debits and credits.

Accrual Basis Accounting

Recording revenues when generated and expenses when incurred, regardless of the timing of cash receipts or payments.

Cash Basis Accounting

Recording revenues when cash is received and expenses when cash is paid.

Deferred Revenue

A liability representing a company’s obligation to provide goods or services to customers in the future.

Expense Recognition Principle (Matching)

Expenses are recorded when incurred in earning revenue; also called matching.

Expenses

Decreases in assets or increases in liabilities arising from providing goods or services during the current period.

Net Income

Revenues minus expenses.

Net Profit Margin

Profit earned from each dollar of revenue.

Revenue Recognition Principle

Revenues are recorded when (or as) the seller provides goods or services to the customer, in the amount the seller expects to be entitled to receive.

Revenues

Increases in assets or settlements of liabilities arising from providing goods or services.

Time Period Assumption

The assumption that allows the long life of a company to be reported in shorter time periods.

Unadjusted Trial Balance

An internal report, prepared before end-of-period adjustments, listing the unadjusted balances of each account to check the equality of total debits and credits.

Adjusted Trial Balance

A list of all accounts and their adjusted balances to check on the equality of recorded debits and credits.

Adjusting Journal Entries

Entries are necessary at the end of each accounting period to report revenues and expenses in the proper period and assets and liabilities at appropriate amounts.

Adjustments

Entries are necessary at the end of each accounting period to report revenues and expenses in the proper period and assets and liabilities at appropriate amounts.

Carrying Value

The amount at which an asset or liability is reported after deducting any contra-accounts.

Contra-Account

An account that is an offset to, or reduction of, another account.

Depreciation

Process of allocating the cost of buildings, equipment, and other similar long-lived “productive” assets over their productive lives using a systematic and rational method of allocation.

Permanent Accounts

The balance sheet accounts that carry their ending balances into the next accounting period.

Post-Closing Trial Balance

Prepared to check the debits equal credits and that all temporary. accounts have been closed.

Temporary Accounts

Income statement accounts that are closed to Retained Earnings at the end of the accounting period.