Chapter 4 key terms
Accounting Cycle: The process by which companies produce their financial statements for a specific period.
Classified Balance Sheet: A balance sheet that places each asset and each liability into a specific category.
Closing Entries: Entries that transfer the revenues, expenses, and Dividends balances to the Retained Earnings account to prepare the company’s books for the next period.
Closing Process: A step in the accounting cycle that occurs at the end of the period. The closing process consists of journalizing and posting the closing entries to set the balances of the revenues, expenses, Income Summary, and Dividends accounts to zero for the next period.
Current Asset: An asset that is expected to be converted to cash, sold, or used up during the next 12 months or within the business’s normal operating cycle if the cycle is longer than a year.
Current Liability: A liability that must be paid with cash, or with goods and services, within one year or within the entity’s operating cycle if the cycle is longer than a year.
Current Ratio: Measures the company’s ability to pay current liabilities from current assets. Total current assets / Total current liabilities.
Income Summary: A temporary account into which revenues and expenses are transferred prior to their final transfer into the Retained Earnings account. Summarizes net income (or net loss) for the period.
Intangible Asset: An asset with no physical form that is valuable because of the special rights it carries.
Liquidity
Long-term Asset: An asset that will not be converted to cash or used up within the business’s operating cycle or one year, whichever is greater.
Long-term Investment: Investments in bonds (debt securities) or stocks (equity securities) in which the company intends to hold the investment for longer than one year.
Long-term Liability: A liability that does not need to be paid within one year or within the entity’s operating cycle, whichever is longer.
Operating Cycle: The time span during which cash is paid for goods and services, which are then sold to customers and cash is collected.
Permanent Account: An account that is not closed at the end of the period—the asset, liability, Common Stock, and Retained Earnings accounts.
Property, Plant, and Equipment: Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.
Post-Closing Trial Balance: A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries. It should include only permanent accounts.
Reversing Entry: A special journal entry that eases the burden of accounting for transactions in the next period. Such entries are the exact opposite of a prior adjusting entry
Temporary Account: An account that relates to a particular accounting period and is closed at the end of that period—the revenues, expenses, Income Summary, and Dividends accounts
Chapter 4 key terms
Accounting Cycle: The process by which companies produce their financial statements for a specific period.
Classified Balance Sheet: A balance sheet that places each asset and each liability into a specific category.
Closing Entries: Entries that transfer the revenues, expenses, and Dividends balances to the Retained Earnings account to prepare the company’s books for the next period.
Closing Process: A step in the accounting cycle that occurs at the end of the period. The closing process consists of journalizing and posting the closing entries to set the balances of the revenues, expenses, Income Summary, and Dividends accounts to zero for the next period.
Current Asset: An asset that is expected to be converted to cash, sold, or used up during the next 12 months or within the business’s normal operating cycle if the cycle is longer than a year.
Current Liability: A liability that must be paid with cash, or with goods and services, within one year or within the entity’s operating cycle if the cycle is longer than a year.
Current Ratio: Measures the company’s ability to pay current liabilities from current assets. Total current assets / Total current liabilities.
Income Summary: A temporary account into which revenues and expenses are transferred prior to their final transfer into the Retained Earnings account. Summarizes net income (or net loss) for the period.
Intangible Asset: An asset with no physical form that is valuable because of the special rights it carries.
Liquidity
Long-term Asset: An asset that will not be converted to cash or used up within the business’s operating cycle or one year, whichever is greater.
Long-term Investment: Investments in bonds (debt securities) or stocks (equity securities) in which the company intends to hold the investment for longer than one year.
Long-term Liability: A liability that does not need to be paid within one year or within the entity’s operating cycle, whichever is longer.
Operating Cycle: The time span during which cash is paid for goods and services, which are then sold to customers and cash is collected.
Permanent Account: An account that is not closed at the end of the period—the asset, liability, Common Stock, and Retained Earnings accounts.
Property, Plant, and Equipment: Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.
Post-Closing Trial Balance: A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries. It should include only permanent accounts.
Reversing Entry: A special journal entry that eases the burden of accounting for transactions in the next period. Such entries are the exact opposite of a prior adjusting entry
Temporary Account: An account that relates to a particular accounting period and is closed at the end of that period—the revenues, expenses, Income Summary, and Dividends accounts
