Chapter 4 terms

Worksheet

• multiple-column form that may be used in making adjustments and in preparing financial statements (closing = zeroing accounts )

• not a permanent accounting record

• prepared using a 5-step process

• optional

Temporary (nominal) accounts 

• Accounts that relate only to a given accounting period. 

• Consist of all income statement accounts, the Dividends account, and the Income Summary account. 

• All temporary accounts  are closed at the end of the accounting period.

Permanent Real Accounts

• Accounts that relate to one or more future  accounting periods.

• Consist of all balance sheet accounts.

  • Balances are  carried forward to the next accounting period.

Classified Balance Sheet: 

• contains standard classifications or sections 

Closing entries: 

• Entries made at the end of an accounting period

• formally recognize in the ledger the transfer of net income & dividends → Retained Earnings

• Produce a zero balance in each of the temporary accounts (closes a temporary account but also updates them )

Correcting Entries 

• Entries to correct errors made in recording transactions

Currents assets: 

• Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer 

  • could be more than one year

Currents liabilities 

• Obligations that a company expects to pay within the coming year or its operating cycle, whichever is longer 

Income summary

• A temporary accounts used in closing revenue and expense accounts 

Intangible assets 

• Long lived assets that do not have physical substance 

Liquidity

• The ability of a company to pay obligations expected to be due within the next year 

Long terms investments 

• (1) investments in stocks and bonds  of other companies that are normally held for many years; 

• (2) long-term  assets, such as land and buildings, not currently being used in operating  activities; 

•  (3) long-term notes receivable.

Long Term Liabilities

• Obligations that a company expects to pay after one year 

  • due longer than one year (noncurrent)

Operating Cycle 

• The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers 

Post Closing trial balance 

• A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Property, Plant, and Equipment 

• Assets with relatively long useful lives that are currently being used in operations 

Reversing Entry 

• An entry, made at the beginning of the next accounting  period that is the exact opposite of the adjusting entry made in the previous period.

Steps to prepare a trial balance

Current assets: examples

• cash,

• short term investments,

• accounts receivable,

• inventory,

• prepaid insurance 

Long-Term investments 

• stocks/bonds of other companies,

• land held for future plant construction

Property, Plant, and Equipment examples

• Land,

• Buildings,

• Equipment (Less: Accumulated Depreciation).