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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
