Financial Accounting - CLEP (All chapters)

Assets

2. Economic resources that the business plans to use in the future to make money.

Balance sheet

2. The financial report that shows business assets, liabilities, and owner's equity as of a particular day.

Balanced books

2. When "Where did it go?" equals "Where did it come from?" or when a company's assets equal its liabilities plus owner's equity.

Capital

2. Assets that help a business or a person make money.

Capitalized

2. When money is changed into another asset that helps the business make money.

Creditors

2. Outsiders to whom the company owes money.

Current assets

2. Assets that can be used to pay current liabilities.

Current liabilities

2. Debts that must be paid within one year or one operating cycle, whichever is longer.

Financial accounting

2. The skill of producing financial statements from business transactions.

Fiscal year

2. The 12-month period a business uses to report the results of its operations.

Liabilities

2. Debts owed to people outside the company.

Liquid

2. The easier it is to change an asset into cash, the more ______ that asset is.

Operating cycle

2. The natural period of time before certain business activities tend to repeat - normally one year.

Owner's equity

2. That portion of the business the owner gets to keep after paying off all creditors.

Sole proprietor

2. The individual owner (without partners) of an unincorported business.

Account

3. A place on the financial books to keep track of financial information that the owner wants to know.

Accumulated depreciation

3. The contra-asset account that accumulates all the depreciation of long-lived assets over the years.

Chart of accounts

3. The official list of all business accounts.

Contra account

3. An account that gets subtracted from its related account. These accounts always get reported as negative numbers.

Contra-asset account

3. An account that gets subtracted from an asset account.

Cost of goods sold

3. The cost to the business of the goods that it sells.

Depreciation expense

3. The amount of long-lived assets used up during operations.

Draw

3. Money that the owner takes from the busines, or money in the business account that the owner spends on personal bills. Also known as Withdrawal.

Expensed

3. Money is "_______" if it is gone forever - if there remains no useful asset as a result of the spending. The opposite of capitalized.

Expenses

3. Accounts that explain why assets went down from operations.

Income

3. Accounts that explain why assets went up from operations.

Income statement

3. The financial report that shows the result of business operations over a period of time.

Inventory

3. A supply of items a business has on hand.

Net

3. A word that means a subtraction has occurred.

Net income

3. Income - Expenses =

Netted

3. When numbers are "_____", they combine so that the negative numbers get subtracted from the positive numbers.

Percentage Analysis

3. A financial statement analysis technique in which one number is assigned as 100% and all other numbers are expressed as a percentage of the first number. In balance sheets, the key number is total assets. In income statements, the key number is sales.

Sales

3. An income account that explains the increase in business assets as a result of selling goods.

Statement of owner's equity

3. A financial statement that calculates an end-of-period balance of the owner's equity account.

T-account

3. A tool to keep track of the ups and downs in accounts. The up go on one of the T and the downs on the other side.

Transportation expense

3. The cost of business airplane fares, trains, and long-distance buses.

Travel expense

3. The cost of living while away from home on business.

Withdrawal

3. Money that the owner takes from the busines, or money in the business account that the owner spends on personal bills. Also known as Draw.

Cash flow statement

4. The business financial statement that shows where the cash came from and where it went during the period. It has four major sections: Cash flow from operations; Cash flow from investing activities; Cash flow from financing activities and a calculation of (1) net cash flow, and (2) cash - end of period.

Direct method

4. The method of calculating cash flow from operations that does not start with net income, but does show cash-in and cash-out categories.

Financing

4. The process of finding money for the business from sources other than normal operations.

Indirect method

4. Th usual method of computing cash flow from operations. It starts with net income and uses the changes in the asset and liability accounts to adjust net income into cash flow from operations.

Investments

4. Uses of money to buy assets that make more money. Long-term investments are in assets such as buildings and equipment. Short-term investments are in assets such as certificates of deposit or stock.

Audit

5. The check of business accounting records in order to give an opinion on whether the financial statements present teh business fairly.

Auditors

5. Certified public accountants wh audit accounting records.

Certified public accountants (CPAs)

5. Accountants licensed by the state as professional independent verifiers of business financial statements.

Financial accounting

5. The skill of producing financial statements from business transactions.

Financial Accounting Standards Board (FASB)

5. The organization of accountants that has the responsiblity of creating accounting rules.

Generally accepted accounting principles (GAAP)

5. The rules of accounting that everyone must follow.

Managerial accounting

5. The skill of providing financial information to run a large business.

Closing

6. End-of-year posting to bring the emporary accounts to zero and transfer their balances into the owner's equity account.

Contra accounts

6. Sister accounts that have a normal balance the opposite of their brother account. These accounts are reported under their brother account and have the effect of lowering their brother account.

Credit

6. The right side of T-accounts. This increases liabilities and equity and income accounts, but decrease assets.

Debit

6. The left side of T-accounts. This increase assets, withdrawal and expense accounts, but decrease liabilities and equity.

Income summary

6. An account used once a year for closing entries. Its purpose is to record net income for the year.

Interim financial statements

6. Financial reports for any period less than one year.

Normal balance

6. All accounts normally keep balances that are either debits or credits.

Post-closing trial balance

6. A trial balance prepared after the books have been closed at the end of the year.

Posting

6. The process of taking amounts from recorded business transactions and placing those amounts as debits or credits in the various accounts.

Temporary accounts

6. Accounts that get closed (brought to zero) at the end of each year. These accounts are income, expenses, withdrawal, and dividends.

Trial balance

6. A listing of all accounts with their balances. Debit balances go in the debit column; credit balances go in the credit column. The debit column must equal the credit column for the books to be balance.

General journal

7. The book or subroutine that can be used to record any type of accountying entry.

General ledger

7. The book or computer subroutine that contains all the individual accounts.

Specialized journal

7. A book or computer subroutine that is designed for quick input of a frequent type of business transaction.

Vertical journal entries

7. A method of journalizing and posting accounts at the same time by recording transactions vertically in columns.

AICPA

8. American Institue of Certified Public Accountants. Accounting's professional organization that issues the code of ethics for accountants.

Bonded

8. When an insurance company has issued a policy saying it will pay the employer should the employee ever steal.

Ethics

8. Standards that define how to act in business situations.

Internal controls

8. Business procedures that make it difficult to get away with wrong behavior.

Material

8. Information significant enough to affect decision making.

Accrual basis accounting

10. The system in which income is recognized when earned and expenses are recognized when incurred.

Cash basis accounting

10. The system in which income and expenses are recognized when cash changes hands. This does not meet GAAP.

Control account

10. The account that shows the total of all the individual records in the subsidiary record.

Current assets

10. Assets that are available to spend within a year.

Direct write-off method

10. The method that recognizes bad-debt expenses in the period the business writes off the accounts receivable. Not GAAP.

Fixed assets

10. Assets that are expected to last longer than one year.

On account

10. A sale for which payment is to be made later.

Plant assets

10. Assets that have a life longer than one year.

Subsidiary record

10. A separate record containing the details of a control account. Example: The accounts receivable subsidiary record lists all who owe the company money, the total of which is reflected in accounts receivable.

Write-off

10. When a company gives up collecting an account receivable, it writes off the account by removing it from company records.

Discount a note

11. To sell a note to a bank that subtracts a discount, giving the seller the proceeds.

Face amount

11. The dollar amount written on the face of a note.

Face interest

11. The interest rate written on the face of a note.

Future value of a note

11. The amount borrowed plus the interest up to the maturity date.

Interest-bearing note

A note with an interest rate written on the face, whose face amount is the present value.

Maker

11. The person who borrows money and writes a note promising to pay in the future.

Maturity value

11. The future value of a note.

Non-interest-bearing-note

11. A note without an interest rate written on the face, whose face amount is the future value.

Present value of a note

11. The amount borrowed, or the principal. Shows the present value as the face amount.

Principal

11. The loan amount that remains unpaid.

Proceeds of a note

11. The amount a bank gives in exchange for a note.

Quick assets

11. Assets quickly changeable into cash: cash, short-term investments, and net accounts receivable.

Contra-purchases account

12. An account that is subtracted from Purchase to compute Net Purchases. Exp: Purchases Discount and Purchases Returns and Allowances

12. Cost of goods sold

12. The cost paid for the merchandise sold.

FIFO

12. The inventory system that assumes the oldest items in inventory are the first ones sold.

Gross margin

12. Sales - Cost of goods sold =

LIFO

12. The inventory system that assumes the latest items purchased are the first ones sold.

Periodic inventory method

12. The inventory method that keeps track of merchandise costs in various purcahses and contra-purchases accounts and then computes cost of goods sold on the income statement. Inventory on the books is adjusted only at year-end.

Perpetual inventory method

12. The inventory method that increases the inventory account with every purchase and lowers the inventory account with every sale.

Purchases account

12. A cost of goods sold account used in the periodic inventory method to keep track fo all merchandise bought for resale during the year.