ACC 311 Intermediate Accounting Chapter 3 and Adjusting/Reversing Entries Review

Comprehensive vocabulary flashcards covering key topics, financial statements, revenue recognition steps, accounting adjustments, and reversing rules from the lecture notes.

Income Statement

The financial report that measures the success of company operations for a given period of time by summarizing revenues, expenses, gains, and losses to determine net income.

Revenues

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Expenses

Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

Gains

Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners.

Losses

Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners.

Transaction Approach

An income measurement method that focuses on the income-related activities and transactions that have occurred during a specific period.

Multiple-Step Income Statement

An income statement format that highlights intermediate subtotals such as gross profit and income from operations, explicitly separating operating from non-operating activities.

Single-Step Income Statement

An income statement format in which net income is determined in a single step by subtracting total expenses from total revenues.

Earnings Per Share (EPS)

A financial metric computed as $\text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted-Average Number of Common Shares Outstanding}}$, measuring dollars earned per share of common stock.

Discontinued Operations

The disposal of a component of a business that represents a strategic shift having a major effect on financial results, reported net of tax after continuing operations.

Intraperiod Tax Allocation

The process of associating the income tax expense of a fiscal period directly to the specific items (such as income from continuing operations and discontinued operations) that produce the tax effect.

Comprehensive Income

A measure comprising all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Other Comprehensive Income (OCI)

Gains and losses that bypass net income on the traditional income statement but directly affect stockholders' equity, such as unrealized holding gains and losses on available-for-sale debt securities.

One Statement Approach (Comprehensive Income)

A format that combines traditional net income and components of other comprehensive income into a single continuous Statement of Comprehensive Income.

Two Statement Approach (Comprehensive Income)

A presentation method using two separate consecutive reports: a traditional Income Statement followed by a Comprehensive Income Statement.

Statement of Stockholders' Equity

A financial statement in columnar form reporting the changes in each stockholders' equity account (including common stock, retained earnings, and accumulated OCI) and total equity during the period.

Revenue Recognition Principle

The core accounting guidance stating that revenue is recognized to depict the transfer of promised goods or services to customers in an amount reflecting expected consideration.

Standalone Selling Price

The price at which a company would sell a promised good or service separately to a customer.

Variable Consideration

A transaction price situation where the consideration amount depends on future events (e.g., discounts, rebates, performance bonuses), estimated using expected value or most likely amount.

Earnings Management

The planned timing of revenues, expenses, gains, and losses by management to smooth earnings fluctuations or reach financial targets.

Non-GAAP Reporting

Financial measures published by management that adjust GAAP net income by excluding items deemed non-representative of regular operating performance.

Prior Period Adjustments

Corrections of errors from prior periods that are recorded in the year discovered as net-of-tax adjustments to the beginning balance of retained earnings.

Adjusting Journal Entry Constraints

Fundamental rules of adjusting entries requiring one Revenue or Expense account, one Balance Sheet account, and strictly NEVER including Cash or Retained Earnings.

Reversing Entries Rules

General rules for reversing entries: (1) All accruals are reversible, (2) No estimates are reversible, (3) Deferrals are reversible only if the original amount was entered into a revenue or expense account.