ACC 1810 2nd Exam Key Words

Accounting cycle

Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post-closing trial balance.

Classified balance sheet

Balance sheet that presents assets and liabilities in relevant subgroups, including current and noncurrent classifications.

Closing entries

Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and withdrawals (dividends for a corporation) accounts to the capital account (or retained earnings for a corporation).

Closing process

Necessary end-of-period steps to prepare the accounts for recording the transactions of the next period.

Current assets

Cash and other assets expected to be sold, collected, or used within one year or the company’s operating cycle, whichever is longer.

Current liabilities

Obligations due to be paid or settled within one year or the company’s operating cycle, whichever is longer.

Current ratio

Ratio used to evaluate a company’s ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.

Income Summary

Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred.

Intangible assets

Long-term assets (resources) used to produce or sell products or services.

Long-term investments

Long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds.

Long-term liabilities

Obligations not due to be paid within one year or the operating cycle, whichever is longer.

Operating cycle

Normal time between paying cash for merchandise or employee services and receiving cash from customers.

Permanent accounts

Accounts that reflect activities related to one or more future periods.

Post-closing trial balance

List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Reversing entries

Optional entries recorded at the beginning of a period that prepare the accounts for the usual journal entries as if adjusting entries had not occurred in the prior period.

Robotic process automation (RPA)

The use of software bots to automate repetitive and rule-based tasks, improving efficiency and reducing errors in accounting processes.

Temporary accounts

Accounts used to record revenues, expenses, and withdrawals (dividends for a corporation); they are closed at the end of each period.

Unclassified balance sheet

Balance sheet that broadly groups assets, liabilities, and equity accounts.

Work sheet

Spreadsheet used to draft an unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements.

Acid-test ratio

Ratio used to assess a company’s ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities.

Allowance for Sales Discounts

Contra asset account that is reported on the balance sheet as a reduction to Accounts Receivable.

Cash discount

Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.

Cost of goods sold

Cost of inventory sold to customers during a period; also called cost of sales.

Credit period

Time period that can pass before a customer’s payment is due.

Credit terms

Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future.

Discount period

Time period in which a cash discount is available and the buyer can make a reduced payment.

Discounts lost

Expenses resulting from not taking advantage of cash discounts on purchases.

FOB

the point when ownership of goods passes to the buyer. The buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to the carrier

General and administrative expenses

Expenses that support the operating activities of a business.

Gross margin/Gross profit

Net sales minus cost of goods sold

Gross margin ratio/Gross Profit Ratio

Gross margin (net sales minus cost of goods sold) divided by net sales.

Gross method

Method of recording purchases at the full invoice price without deducting any cash discounts.

Gross profit/Gross margin

Net sales minus cost of goods sold.

Inventory

Goods a company owns and expects to produce and/or sell in its normal operations.

Inventory Returns Estimated

Current asset account reporting the inventory estimated to be returned.

Merchandise

Goods that a company owns and expects to sell to customers.

Merchandise inventory

Goods that a company owns and expects to sell to customers.

Merchandiser

Entity that earns income by buying and selling merchandise.

Multiple-step income statement

Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses.

Net method

Method of recording purchases at the full invoice price less any cash discounts.

Periodic inventory system

Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers.

Perpetual inventory system

Method that maintains continuous records of the cost of inventory available and the cost of goods sold.

Purchases discount

Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.

Retailer

Intermediary that buys products from manufacturers or wholesalers and sells them to consumers.

Sales discount

Term used by a seller to describe a cash discount granted to buyers who pay within the discount period.

Sales Refund Payable

A current liability account reflecting the amount of sales expected to be refunded to customers.

Sales Returns and Allowances

Refunds or credits given to customers for unsatisfactory merchandise are recorded (debited) in…?

Selling expenses

Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.

Shrinkage

Inventory losses that occur as a result of theft or deterioration.

Single-step income statement

Income statement format that subtracts total expenses, including cost of goods sold, from total revenues with no other subtotals.

Supplementary records

Information outside the usual accounting records.

Wholesaler

Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.

Average cost

Method for assigning inventory cost to sales.

Consignee

Receiver of goods owned by another who holds them for purposes of selling them for the owner.

Consignor

Owner of goods held by another party who will sell them for the owner.

Days’ sales in inventory

Estimate of number of days needed to convert inventory into receivables or cash (= ending inventory / COGS x 365)

First-in, first-out (FIFO)

Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold.

Gross profit method

Procedure to estimate inventory by using the past gross profit rate to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale.

Interim financial statements

Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods.

Inventory turnover

Number of times a company’s average inventory is sold during a period; computed by dividing cost of goods sold by average inventory.

Last-in, first-out (LIFO)

Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Lower of cost or market (LCM)

Required method to report inventory at market replacement cost when that market cost is lower than recorded cost.

Net realizable value

Expected selling price (value) of an item minus the cost of making the sale.

Retail inventory method

Method for estimating ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail.

Specific identification (SI)

Method for assigning cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of goods sold and/or cost of inventory.

Weighted average (WA)

Method for assigning inventory cost to sales.