ACCOUNTING EXAM 2-CHAPTERS 4 AND 5

Current Assets

converted to cash or used during the next year

Long-Term Assets

won’t be converted to cash or used within operating cycle

Long-Term Assets

property, plant, equipment

Liquidity

measures how quickly an account can be converted to cash

Income Summary

temporary account that summarizes net income or loss for the period

Net Loss

debits are bigger than credits

Temporary Account

closed at the end of the period

Temporary Account

revenues, expenses, income summary, dividends

Permanent Account

not closed at the end of the period

Permanent Account

assets, liabilities, common stock, retained earnings

Post-Closing Trial Balance

list of permanent accounts and their balances at the end of the period

Accounting Cycle Steps

1) beginning balances

2) transactions

3) journal entries to ledger

4) unadjusted trial balance

5) adjusting entries

6) adjusted trial balance

7) financial statements

8) closing entries

9) closing trial balance

Current Ratio

measures a company’s ability to pay current liabilities with current assets

Current Liabilities

must be paid with cash, goods, or services within one year

Current Liabilities

accounts payable, salaries payable, unearned revenue

Credit

revenues exceeded expenses

Retained Earnings Increase

net income

Retained Earnings Decreased

net loss

Income Statement of Merchandiser

sales revenue, cost of goods sold, gross profit, expenses

Income Statement of Service Company

service revenue, expenses

3/15, n/30

3% discount if paid within 15 days, full amount due in 30 days

FOB Shipping Point

buyer takes title to goods after goods leave shipping point

FOB Destination

buyer takes title to goods at the delivery destination

Multi-Step Income Statement Steps

1) net sales

2) COGS

3) gross profit

4) operating income

5) income before taxes

6) net income

Other Expenses

expense that falls outside of the company’s normal business

Gross Profit Percentage

gross profit/net sales revenue

Periodic Inventory System

requires physical counts of inventory to determine quantities on hand

Operating Income

gross profit - operating expenses