ACCT 201 Exam 1

Account

An individual accounting record of increases and decreases in specific asset, liability, stockholders’ equity, revenue, or expense items

Accounting

The information system that identifies, records and communicates the economic events of an organization to interested users

Accounting information system

the system of collecting and processing transaction data and communicating financial information to decision makers

Accounting transactions

events that require recording in the financial statements because they affect assets, liabilities, or stockholders’ equity

Accounting basis accounting

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company’s financial statements, even if cash was not exchanged

Accruals

Expenses or revenues that are recognized at a date earlier than the point when cash is exchanged

Accrued expenses

expenses incurred but not yet paid in cash or recorded

Accrued revenues

revenues for services performed but not yet received in cash or recorded

Adjusted trial balances

A list of accountings and their balances after all adjustments have been made

adjusting entries

entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed

Annual report

A report prepared by corporate management that presents financial information including financial statements, am management discussion and analysis section, notes and an independent auditor’s report

Assets

Resources owned by a business

Auditing

The examination of financial statements by a certified public accountant in order to express an opinion as to the fairness of presentation

Balance sheet

a financial statement that reports the assets and claims to those assets at a specific point in time

Basic accounting equation

assets = Liabilities + Stockhodlers’’ equity

Book value

the difference between the cost of a depreciable asset and its related accumulated depreciation

cash-basis accounting

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash

Chart of accounts

a list of the names of a company’s accounts

Classified balance sheet

a balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections

Closing entries

entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders’ equity account, Retained Earnings

Common stock

term used to describe the total amount paid in by stockholders for the shares they purchase

Comparability

Ability to compare the accounting information of different companies because they use the same accounting principles

Consistency

Use of the same accounting principles and methods from year to year within a company

Contra asset account

An account that is offset against an asset account on the balance sheet

Corporation

A business organized as a separate legal entity owned by stockholders

Cost constraint

Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

Credit

On the right side of an account. An account that is offset against an asset account on the balance sheet

Current assets

Assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer

Current liabilities

Obligations that a company expects to pay within the next year or operating cycle, whichever is longer

Current ratio

A measure of liquidity computed as current assets divided by current liabilities

Data analyitics

The evaluation of data, often employing both software and statistics, to draw inferences

Debit

A debit is an entry on the left side of an account that represents an increase in assets or a decrease in liabilities or equity.

Debt to assets ratio

a measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors

Deferrals

Expenses of revenues that are recognized at a date later than the point when cash was originally exchanged.

Depreciation

The process of allocating the cost of an asset to expense over its useful life

Dividends

Payments of cash from a corporation to its stockholders

Double-entry system

a system that records the two-sided effect of each transaction in appropriate accounts

Earnings management

the planned timing of revenues, expenses, gains, and losses to reduce volatitlity in reported net income

Earnings per share (EPS)

a measure of the net income earned on each share of common stock; computed as net income minus preferred dividneds divided by the weighted-average number of common shares outstanding during the year

Expense Recognition principle

the principle that dictates that efforts (expenses) be recognized with results (revenues) in the period when the company makes efforts to generate those revenues

Expenses

the cost of assets consumed or services used in the process of generating revenues

Fair value principle

Assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

Faithful representation

information that accurately depicts what really happened

Fiscal Year

An accounting period that is one year long

Forensic accounting

an area of accounting that uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud

Full disclosure principle

accounting principle that dictates that companies disclose sufficient details regarding circumstances and events that would make a difference to financial statement users.

General journal

the most basic form of journal

General ledger

a ledger that contains all asset, liability, stockholders’ equity, revenue, and expense accounts

Going concern assumption

the assumption that the company will continue in operation for the foreseeable future

Historical cost principle

An accounting principle that states that companies should record assets at their cost

Income statement

a financial statement that reports a company’s revenues and expenses and resulting net income or n et loss for a specific period of time

Income summary

a temporary account used in closing revenue and expense accounts

Intangible assets

Assets that do not have physical substance

Journal

An accounting record in which transactions are initially recorded in chronological order

Journalizing

the procedure of entering transaction data in the journal

ledger

a record of all accounts maintained by a company and their amounts

liabitlities

Amounts owed to creditors in the form of debts and other obligations

Liquidity

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle

Liquidity ratios

measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

Long term investments

Generally, 1. investments in stocks and bonds of other corporations that companies hold for more than one year; 2. long-term assets, such as land and buildings, not currently being used in the company’s operations, and 3. long-term notes receivable

Long term liabilities (long-term debt)

Obligations that a company expects to pay after one year

materiality

whether omitting or misstating an item could influence the decision of a financial statement user

Monetary unit assumption

An assumption that requires that only those things that can be expressed in money are included in the accounting records

Net income

the amount by which revenues exceed expenses

Net loss

the amount by which expenses exceed revenues

Notes to the financial statements

Notes that clarify information presented in the financial statements and provide additional detail

Operating cycle

the average time required to purchase inventory, sell it on account, and then collect cash from customers- that is, go from cash to cash

Partnership

a business owned by two or more persons associated as partners

Periodicity assumption

an assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

Permanent account

balance sheet ac counts whose balances are carried forward to the next accounting period

post closing trial balance

a list of permanent ac counts and their balances after a company has journalized and posted closing entries

Posting

the procedure of transferring journal entry amounts to the ledger accounts

Prepaid expenses (prepayments)

Expenses paid in cash before they are used or consumed

Profitability ratios

Measures of the operating success of a company for a given period of time

Property, plant and equipment

Assets with relatively long useful lives that are currently used in operating the business

Quality of earnings

Indicates the level of full and transparent information that a company provides to users of its financial statements

Ratio

An expression of the mathematical relationship between one quantity and another

Ratio analysis

a technique that expresses the relationship among selected items of financial statement data

Relevance

the quality of information that indicates the information makes a difference in a decision

Retained earnings

the amount of net income retained in the corporation

Retained earnings statement

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period

Revenue

The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business

Revenue recognition principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied

Reversing entry

an entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period

Sole propriertorship

A business owned by one person

Solvency

the ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity

Solvency ratios

Measures of the ability of the company to survive over a long period of time

Statement of cash flows

a financial statement that provides financial information about the cash receipts and cash payments of a busines for a specific period of time

Stockholders’ equity

the owners’ claim to assets

T-account

the basic form of an account

Taxation

an area of public accounting involving tax advice, tax planning, preparing tax returns, and representing clients before governmental agencies

Temporary accounts

revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period

timely

Information that is available to decision-makers before it loses its capacity to influence decisions

trial balance

a list of accounts and their balances at a given time

understandability

information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

unearned revenues

cash received and a liability recorded before services are performed

useful life

the length of service of a productive asset

verifiable

the quality of information that occurs when independent observers, using the same methods, obtain similar results

working capital

the difference between the amounts of current assets and current liabilites

Worksheet

a multiple-column form that companies may user in the adjustment process and in preparing financial statements