Computerized Accounting Review Flashcards

A comprehensive set of vocabulary flashcards based on lecture notes for Computerized Accounting, covering fundamental definitions, career paths, financial statement preparation, payroll, and accounting principles.

Accounting

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

Accounting System

A system designed to accumulate data about a firm’s financial affairs, classify the data in a meaningful way, and summarize it in periodic reports called financial statements.

Certified Bookkeeper (CB)

A designation assuring an individual possesses the level of knowledge and skills needed to carry out key accounting functions through the adjusted trial balance, including payroll.

Auditing

The review of financial statements to assess their fairness and adherence to GAAP (Generally Accepted Accounting Principles).

Internal Control

A company's policies and procedures in place to safeguard assets, ensure reliability of accounting data, and promote compliance with management policies and applicable laws.

Fraud

Intentional and reckless acts that result in the confiscation of a firm’s assets or misinterpretation of the firm’s accounting data.

Entity

Recognized as having its own separate identity; may be an individual, a town, a university, or a business.

Economic Entity

A business or organization whose major purpose is to produce a profit for its owners.

Sole Proprietorship

A business entity with one owner, where the owner is responsible for the firm’s debt when the firm is unable to pay.

Corporation

A business entity with one or more owners (stockholders) whose life can continue indefinitely and where stockholders are not responsible for the firm’s debts.

GAAP

Generally Accepted Accounting Principles; the rules developed by the Financial Accounting Standards Board (FASB) that publicly owned companies must follow.

Business Transaction

Any financial event that changes the resources of a firm, such as purchases, sales, payments, and receipts of cash.

Accounts Payable

Amounts that a business must pay in the future to creditors.

Assets

Property that a business owns.

Liabilities

Debts or obligations of the business.

Owner's Equity

The owner’s financial interest in the business; sometimes called proprietorship or net worth.

Fundamental Accounting Equation

The relationship expressed as $\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$.

Revenue

The inflow of money or other assets resulting from the sales of goods or services or from the use of money or property.

Expense

The outflow of money, the use of other assets, or the incurring of a liability.

Accounts Receivable

Amounts owed to a business by its clients or customers.

Net Income

The result when revenue is greater than expenses ($\text{Revenue} > \text{Expenses}$).

Fair Market Value

The current worth of an asset or the price the asset would bring if sold on the open market.

T-account

An accounting tool consisting of a vertical line and a horizontal line resembling the letter T, used to analyze transactions.

Double-entry system

An accounting system requiring that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Transposition

An error where digits of a number are switched (e.g., writing 357 for 375).

Slide

An error where the decimal point is misplaced (e.g., writing 375 for 37.50).

Permanent Accounts

Also called real accounts; these are accounts that are closed at the end of every accounting period (Balance Sheet accounts).

Temporary Accounts

Also called nominal accounts; accounts transferred to the capital account at the end of the accounting period that start with zero balances.

Journalizing

The process of recording transactions in the general journal.

Audit Trail

A chain of references that makes it possible to trace information, locate errors, and prevent fraud.

Posting

The process of transferring data from the journal to the ledger.

Worksheet

A form used to gather all data needed at the end of an accounting period to prepare financial statements.

Prepaid Expenses

Items acquired and paid for in advance of their use, such as Prepaid Rent or Prepaid Insurance.

Depreciation

The process of allocating the cost of long-term assets over their expected useful lives.

Salvage Value

An estimate of the amount that may be received by selling or disposing of an asset at the end of its useful life.

Accumulated Depreciation

A contra asset account with a normal credit balance used to record total depreciation taken on an asset.

Book Value

The portion of an asset's original cost that has not yet been depreciated ($\text{Cost} - \text{Accumulated Depreciation}$).

Income Summary Account

A special temporary owner's equity account used only in the closing process to summarize results of operations.

Retail Business

A business that sells goods and services directly to individual consumers.

Periodic Inventory System

An inventory system where the merchandise inventory balance is only updated when a physical inventory is taken.

Perpetual Inventory System

An inventory system that tracks the inventories on hand at all times.

Subsidiary Ledger

A ledger that contains accounts of a single type, such as the Accounts Receivable Ledger or Accounts Payable Ledger.

Credit Memorandum

A document issued to a customer stating their account is being reduced by a specific amount due to a return or allowance.

Trade Discount

A reduction from the list price based on the volume purchased by trade customers.

Promissory Note

A written promise to pay a specified amount of money on a certain date, often including interest.

Dishonored Check

A check returned to the depositor unpaid, often stamped NSF (Not Sufficient Funds).

Outstanding Checks

Checks recorded in the cash payments journal that have not yet been paid by the bank.

Deposit in Transit

A deposit recorded in the cash receipts journal that reaches the bank too late to appear on the monthly bank statement.

Independent Contractor

An individual paid to carry out a specific task but not under the direct supervision or control of the company.

FICA Tax

Federal Insurance Contributions Act; social security tax providing retirement, disability, and dependent benefits.

FUTA

Federal Unemployment Tax Act; provides benefits for employees who become unemployed.

Accrual Basis

An accounting method where revenue is recognized when earned and expenses are recognized when incurred, regardless of cash flow.

Current Assets

Cash and items normally converted into cash within one year, listed in order of liquidity.

Working Capital

The difference between current assets and current liabilities ($\text{Current Assets} - \text{Current Liabilities}$).

Current Ratio

A measure of a firm’s ability to pay current obligations, calculated as $\frac{\text{Current Assets}}{\text{Current Liabilities}}$.

Reversing Entries

Entries made to reverse the effect of certain adjustments to help prevent errors in the new accounting period.

Sarbanes-Oxley Act

A 2002 law that tightens regulation of financial reporting by publicly held companies and their auditors.

Relevance

An accounting characteristic where information is capable of making a difference in a decision; must have predictive or confirmatory value.

Faithful Representation

An accounting characteristic where information reflects true activities; must be complete, neutral, and free from error.

Conservatism

The principle that when in doubt, one should choose the action that results in the least possible reported income or largest reported loss.