Completing the Accounting Cycle Practice Flashcards

A comprehensive set of vocabulary flashcards covering the completion of the accounting cycle, including worksheets, closing entries, correcting entries, and the components of a classified balance sheet.

Worksheet

A multiple-column form used in preparing financial statements; it is not a permanent accounting record and its use is optional.

Closing Entries

Entries formally made at the end of an annual accounting period to transfer net income (or net loss) and owner’s drawing to owner’s capital.

Temporary Accounts

Accounts that are closed at the end of the period, such as revenues, expenses, and owner's drawing, which will have zero balances after the closing process.

Permanent Account

An account that is not closed at the end of the period, such as Owner’s Capital, which carries its balance forward into the next accounting period.

Post-Closing Trial Balance

A report prepared after closing entries are posted that proves the equality of the permanent account balances.

Accounting Cycle Steps

The sequence of nine steps: 1. Analyze transactions, 2. Journalize, 3. Post, 4. Prepare trial balance, 5. Journalize/post adjustments, 6. Prepare adjusted trial balance, 7. Prepare financial statements, 8. Journalize/post closing entries, 9. Prepare post-closing trial balance.

Correcting Entries

Entries made whenever an error is discovered in the accounting records; they must be posted before closing entries.

Classified Balance Sheet

A financial statement that groups similar assets and similar liabilities together to improve the reader's understanding.

Current Assets

Assets that a company expects to convert to cash or use up within $1$ year or the operating cycle, whichever is longer.

Operating Cycle

The average time it takes to go from the purchase of inventory to the collection of cash from customers.

Long-Term Investments

Investments in stocks or bonds of other companies, or investments in long-term assets such as land or buildings not currently used in operations.

Property, Plant, and Equipment

Assets with long useful lives that are currently being used in business operations.

Depreciation

The process of allocating the cost of assets across the number of years in their useful life.

Accumulated Depreciation

The total amount of depreciation expensed thus far in the life of an asset.

Intangible Assets

Assets that do not have physical substance, such as patents or trademarks.

Current Liabilities

Obligations that the company is expected to pay within the coming year.

Liquidity

The ability of a company to pay obligations that are expected to be due within the next year.

Long-Term Liabilities

Obligations a company expects to pay after more than $1$ year.