Financial accounting (chapter 4)

Classified balance sheet

A balance sheet that places each asset and each liability into a specific category

Liquidity

a measure of how quickly an item can be converted to cash

Current assets

An asset that is expected to be converted to cash, sold, or used up during the next 12 months or within the business normal operating cycle if the cycle is longer than a year.

Long-term assets 

an asset that will not be converted to cash or used up within the business operating cycle or one year, whichever is greater.

Long-term investments

An investment in debt and equity securities that the investor intends to hold for longer than one year.

Intangible assets

An asset with no physical form that is valuable because of the special rights it carries.

Current liabilities

A liability that must be paid with cash, or with goods and services, within a year, or within the entity’s operating cycle if the cycle is longer than a year.

Long-term liabilities 

A liability that does not need to be paid within a year or within the entity’s operating cycle, whichever is longer.S

Sunburst chart

A data visualization that uses a series of rings to correspond to a different level in the hierarchy. Useful for showing a proportion of the total data

Closing process

A step in the accounting cycle that occurs at the end of the period. The closing process consists of journalizing and posting the closing entries to set the balances of the revenues, expenses, income Summary, and Dividends accounts to zero for the next period

Temporary accounts 

An account that relates to a particular accounting period, the revenues, expenses, Income Summary, and Dividends accounts

Permanent accounts

An account that is not closed at the end of the period, the asset liability, common stock, and retained earnings accounts

Closing entries

entries that transfer the revenues, expenses, and dividends balances to the Retained Earnings account to prepare the Company’s books for the next period.

Income summary

A temporary account into which revenues and expenses are transferred prior to their final transfer into the Retained Earnings account. Summarizes net income (or net loss) for the period

Post-closing trial balance 

A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries. It should only include only permanent accounts.

Current ratio

Measures the company’s ability to pay current liabilities from current assets (total current assets / total current liabilities).

Operating cycle

The time span during which cash is paid for goods and services, which are then sold to customers and cash is collected.