ACC 2303 SI Session 6 Exam 1 Practice Flashcards

Vocabulary practice flashcards covering fundamental accounting principles, financial statements, ratios, account classifications, and journal entry concepts from the Exam 1 Review.

Accounting Equation

The fundamental formula of financial accounting, defined as $\text{Total Assets} = \text{Total Liabilities} + \text{Stockholders' Equity}$.

Financial Statements Preparation Order

The sequential order in which financial statements are prepared: Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows.

Asset Account

An account type that is increased by a debit entry and decreased by a credit entry.

Trial Balance

A listing of all accounts with their current balances at a specific point in time, used to check the equality of total debits and total credits.

Primary Users of Financial Statements

The external decision-makers for whom financial statements are primarily prepared, specifically investors and creditors.

Temporary Accounts

Accounts that track activity for a single accounting period and are closed at period-end, including revenue accounts, expense accounts, and dividends.

Permanent Accounts

Balance sheet accounts whose balances carry forward into subsequent accounting periods, including assets, liabilities, common stock, and retained earnings.

Income Statement

The financial statement presenting a summary of an entity's revenues and expenses for a specific period of time.

Balance Sheet

The financial statement reporting an entity's assets, liabilities, and stockholders' equity at a specific point in time; also known as the Statement of Financial Position.

Statement of Retained Earnings

The financial statement presenting changes in retained earnings over a period, calculated as $\text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends} = \text{Ending Retained Earnings}$.

Deferral

An accounting adjustment scenario where cash is exchanged first and the corresponding revenue or expense recognition occurs later.

Accrual

An accounting adjustment scenario where revenue or expense is recognized first and the corresponding cash transaction occurs later.

Current Ratio

A liquidity ratio calculated as $\frac{\text{Total Current Assets}}{\text{Total Current Liabilities}}$.

Debt Ratio

A solvency metric measuring total liabilities relative to total assets, calculated as $\frac{\text{Total Liabilities}}{\text{Total Assets}}$.

Net Working Capital (NWC)

A measure of short-term financial strength, calculated as $\text{Total Current Assets} - \text{Total Current Liabilities}$.

Closing Entries

Journal entries made at the end of an accounting period to clear temporary account balances to zero and update the Retained Earnings account.

Unearned Revenue

A liability account representing cash collected from customers before services are rendered or goods are delivered.

Revenues

Increases in retained earnings resulting from selling products or performing services for customers.

Primary Objective of Financial Reporting

To provide financial information that is useful to existing and potential investors and creditors in making investment and lending decisions.

Double Taxation

The primary financial disadvantage of a corporation, where business income is taxed at the corporate level and again as personal dividend income for shareholders.

Proprietorship

A business structure owned by a single individual featuring single taxation and full personal liability for business debts.

Prepaid Expense

An asset account representing advance payments for goods or services to be consumed in future periods, possessing a normal debit balance.

Depreciation Expense

The allocation of a plant asset's cost over its useful life; recording it reduces net income, total assets, and stockholders' equity.