Accounting 201 Ch. 1-12

Posting reference (PR) column

A column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts

Statement of cash flows

A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing

Conceptual framework

A written framework to guide the development, preparation, and interpretation of financial accounting information

EOM

Abbreviation for end of month; used to describe credit terms for credit transactions

FOB

Abbreviation for free on board; the point when ownership of goods passes to the buyer; FOB shipping point (or factory) means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to carrier; FOB destination means the seller pays shipping costs and buyer accepts ownership of goods at the buyer's place of business

Contra account

Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance

Owner, Capital

Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity

Balance column account

Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry

Measurement principle

Accounting information is based on cost with potential subsequent adjustments to fair value; see also cost principle

Cost principle

Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions

Double-entry accounting

Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit

Cash basis accounting

Accounting system that recognizes revenues when cash is received and records expenses when cash is paid

Accrual basis accounting

Accounting system that recognizes revenues when earned and expenses when incurred; the basis for GAAP

Bad debts

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts

Permanent accounts

Accounts that reflect activities related to one or more future periods; balance sheet accounts whose balances are not closed; also called real accounts

Temporary accounts

Accounts used to record revenues, expenses, and withdrawals (dividends for a corporation); they are closed at the end of each period; also called nominal accounts

Internal transactions

Activities within an organization that can affect the accounting equation

Capital expenditures

Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures

Cost

All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use

Internal controls or Internal control system

All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies

General journal

All-purpose journal for recording the debits and credits of transactions and events

Leasehold improvements

Alterations or improvements to leased property such as partitions and storefronts

Goodwill

Amount by which a company's (or a segment's) value exceeds the value of its individual assets less its liabilities

Net income

Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings

Principal of a note

Amount that the signer of a note agrees to pay back when it matures, not including interest

Accounts receivable

Amounts due from customers for credit sales; backed by the customer's general credit standing

Business

An organization of one or more individuals selling products and/or services for profit

Working papers

Analyses and other informal reports prepared by accountants and managers when organizing information for formal reports and financial statements

Audit

Analysis and report of an organization's accounting system, its records, and its reports using various tests

Check register

Another name for a cash disbursements journal when the journal has a column for check numbers

Special journal

Any journal used for recording and posting transactions of a similar type

Financial accounting

Area of accounting aimed mainly at serving external users

Note receivable

Asset consisting of a written promise to receive a definite sum of money on demand or on a specific future date(s)

Indefinite life

Asset life that is not limited by legal, regulatory, contractual, competitive, economic, or other factors

Asset book value

Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account

Book value

Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account

Expanded accounting equation

Assets = Liabilities + Equity; Equity equals [Owner capital − Owner withdrawals + Revenues − Expenses] for a noncorporation; Equity equals [Contributed Capital + Retained Earnings + Revenues − Expenses] for a corporation where dividends are subtracted from retained earnings

Natural resources

Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called wasting assets

Land improvements

Assets that increase the benefits of land, have a limited useful life, and are depreciated

Time period assumption

Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years

Liquidity

Availability of resources to meet short-term cash requirements

Unclassified balance sheet

Balance sheet that broadly groups assets, liabilities, and equity accounts

Report form balance sheet

Balance sheet that lists accounts vertically in the order of assets, liabilities, and equity

Account form balance sheet

Balance sheet that lists assets on the left and liabilities and owner's equity on the right.

Classified balance sheet

Balance sheet that presents assets and liabilities in relevant subgroups, including current and noncurrent classifications

Bank statement

Bank report on the depositor's beginning and ending cash balances, and a listing of its changes, for a period

Social responsibility

Being accountable for the impact that one's actions might have on society

Ethics

Beliefs that distinguish right from wrong; the accepted standards of good and bad behavior

Sole proprietorship

Business owned by one person that is not organized as a corporation; also called proprietorship

Corporation

Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders

Vendee

Buyer of goods or services

Current assets

Cash and other assets expected to be sold, collected, or used within one year or the company's operating cycle, whichever is longer

List price

Catalog (full) price of an item before any trade discount is deducted

Changes in accounting estimates

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods

Interest

Charge for using money (or other assets) loaned from one entity to another

Canceled checks

Checks that the bank has paid and deducted from the depositor's account

Outstanding checks

Checks written and recorded by the depositor but not yet paid by the bank at the bank statement date

Committee on Sponsoring Organizations (COSO)

Committee devoted to improving the quality of financial reporting through effective internal controls, consisting of five interrelated components, along with other mechanisms (www.COSO.org)

Manufacturer

Company that uses labor and operating assets to convert raw materials to finished goods

Inadequacy

Condition in which the capacity of plant assets is too small to meet the company's production demands

Obsolescence

Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage

Fiscal year

Consecutive 12-month (or 52-week) period chosen as the organization's annual accounting period

Cost of goods available for sale

Consists of beginning inventory plus net purchases of a period

Allowance for Doubtful Accounts

Contra asset account with a balance approximating uncollectible accounts receivable; also called Allowance for Uncollectible Accounts

Lease

Contract specifying the rental of property

Double taxation

Corporate income is taxed and then its later distribution through dividends is normally taxed again for shareholders

C corporation

Corporation that does not qualify for nor elect to be treated as a proprietorship or partnership for income tax purposes and therefore is subject to income taxes; also called C corp

S corporation

Corporation that meets special tax qualifications so as to be treated like a partnership for income tax purposes

Common stock

Corporation's basic ownership share; also generically called capital stock

Dividends

Corporation's distributions of assets to its owners

Depreciable cost

Cost of a plant asset less its salvage value

Cost of goods sold

Cost of inventory sold to customers during a period; also called cost of sales

Accrued expenses

Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities

Liabilities

Creditors' claims on an organization's assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events

Retained earnings

Cumulative income less cumulative losses and dividends

Accumulated depreciation

Cumulative sum of all depreciation expense recorded for an asset

Maturity date of a note

Date when a note's principal and interest are due

Short-term investments

Debt and equity securities that management expects to convert to cash within the next 3 to 12 months (or the operating cycle if longer); also called temporary investments or marketable securities

Deposits in transit

Deposits recorded by the company but not yet recorded by its bank

Double-declining-balance (DDB) depreciation

Depreciation equals beginning book value multiplied by 2 times the straight-line rate

Modified Accelerated Cost Recovery System (MACRS)

Depreciation system required by federal income tax law

Credit terms

Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future

Discount on note payable

Difference between the face value of a note payable and the (lesser) amount borrowed; reflects the added interest to be paid on the note over its life

Contributed capital in excess of par value

Difference between the par value of stock and its issue price when issued at a price above par

Account balance

Difference between the total debits and the total credits (including the beginning balance) in an account

Impairment

Diminishment of an asset value

Invoice approval

Document containing a checklist of steps necessary for approving the recording and payment of an invoice; also called check authorization

Purchase requisition

Document listing merchandise needed by a department and requesting it be purchased

Check

Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient

Purchase order

Document used by the purchasing department to place an order with a seller (vendor)

Merchandiser

Entity that earns net income by buying and selling merchandise

Payee of the note

Entity to whom a note is made payable

Maker of the note

Entity who signs a note and promises to pay it at maturity

Closing entries

Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and withdrawal (dividend for a corporation) accounts to the capital account (to retained earnings for a corporation)

Accounting equation

Equality involving a company's assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation

Balance sheet equation

Equality involving a company's assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation

Shares

Equity of a corporation divided into ownership units; also called stock

Salvage value

Estimate of amount to be recovered at the end of an asset's useful life; also called residual value or scrap value

Days' sales in inventory

Estimate of number of days needed to convert inventory into receivables or cash; equals ending inventory divided by cost of goods sold and then multiplied by 365; also called days' stock on hand

Plant asset age

Estimate of the age of a company's plant assets, computed by dividing accumulated depreciation by depreciation expense

Net loss

Excess of expenses over revenues for a period

External transactions

Exchanges of economic value between one entity and another entity

Patent

Exclusive right granted to its owner to produce and sell an item or to use a process for 20 years

Realizable value

Expected proceeds from converting an asset into cash

Net realizable value

Expected selling price (value) of an item minus the cost of making the sale

Revenue expenditures

Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods

Betterments

Expenditures to make a plant asset more efficient or productive; also called improvements

Depreciation

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset

Selling expenses

Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers

Discounts lost

Expenses resulting from not taking advantage of cash discounts on purchases

General and administrative expenses

Expenses that support the operating activities of a business

Statements of Financial Accounting Standards (SFAS)

FASB publications that establish U.S. GAAP

Securities and Exchange Commission (SEC)

Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public

Balance sheet

Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date

Income statement

Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses

Annual financial statements

Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable

Interim financial statements

Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods

Receiving report

Form used to report that ordered goods are received and to describe their quantity and condition

Inventory

Goods a company owns and expects to sell in its normal operations

Merchandise inventory

Goods that a company owns and expects to sell to customers; also called merchandise or inventory

Revenues

Gross increase in equity from a company's business activities that earn income; also called sales

Gross margin ratio

Gross margin (net sales minus cost of goods sold) divided by net sales; also called gross profit ratio

International Accounting Standards Board (IASB)

Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS)

Events

Happenings that both affect an organization's financial position and can be reliably measured

Cash

Includes currency, coins, and amounts on deposit in bank checking or savings accounts

Financial statements

Includes the balance sheet, income statement, statement of owner's (or stockholders') equity, and statement of cash flows

Signature card

Includes the signatures of each person authorized to sign checks on the bank account

Cash Over and Short

Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments

Single-step income statement

Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses

Multiple-step income statement

Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses

Financial Accounting Standards Board (FASB)

Independent group of full-time members responsible for setting accounting rules

Auditors

Individuals hired to review financial reports and information systems. Internal auditors of a company are employed to assess and evaluate its system of internal controls, including the resulting reports. External auditors are independent of a company and are hired to assess and evaluate the "fairness" of financial statements (or to perform other contracted financial services)

Creditors

Individuals or organizations entitled to receive payments

Debtors

Individuals or organizations that owe money

Accounting

Information and measurement system that identifies, records, and communicates relevant information about a company's business activities

Supplementary records

Information outside the usual accounting records; also called supplemental records

Wholesaler

Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers

Retailer

Intermediary that buys products from manufacturers or wholesalers and sells them to consumers

Voucher

Internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are required or allowed by over 100 countries; IFRS is set by the International Accounting Standards Board (IASB), which aims to develop a single set of global standards, to promote those standards, and to converge national and international standards globally

Shrinkage

Inventory losses that occur as a result of theft or deterioration

Invoice

Itemized record of goods prepared by the vendor that lists the customer's name, items sold, sales prices, and terms of sale

Prepaid expenses

Items paid for in advance of receiving their benefits; classified as assets

Voucher register

Journal (referred to as book of original entry) in which all vouchers are recorded after they have been approved

Adjusting entry

Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account

Compound journal entry

Journal entry that affects at least three accounts

Purchases journal

Journal normally used to record all purchases on credit

Limited life

Length of time an asset will be productively used in the operations of a business

Useful life

Length of time an asset will be productively used in the operations of a business; also called service life or limited life

Accounting period

Length of time covered by financial statements; also called reporting period

Account payable

Liability created by buying goods or services on credit; backed by the buyer's general credit standing

Unearned revenue

Liability created when customers pay in advance for products or services; earned when the products or services are later delivered

Note payable

Liability expressed by a written promise to pay a definite sum of money on demand or on a specific future date(s)

Supply chain

Linkages of services or goods extending from suppliers, to the company itself, and on to customers

Adjusted trial balance

List of accounts and balances prepared after period-end adjustments are recorded and posted

Unadjusted trial balance

List of accounts and balances prepared before accounting adjustments are recorded and posted

Trial balance

List of accounts and their balances at a point in time; total debit balances equal total credit balances

Chart of accounts

List of accounts used by a company; includes an identification number for each account

Post-closing trial balance

List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Deposit ticket

Lists items such as currency, coins, and checks deposited and their corresponding dollar amounts

Intangible assets

Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits

Long-term investments

Long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds

Extraordinary repairs

Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure

Non-sufficient funds (NSF) check

Maker's bank account has insufficient money to pay the check; also called hot check

Total asset turnover

Measure of a company's ability to use its assets to generate sales; computed by dividing net sales by average total assets

Accounts receivable turnover

Measure of both the quality and liquidity of accounts receivable; indicates how often receivables are received and collected during the period; computed by dividing net sales by average accounts receivable

Days' sales uncollected

Measure of the liquidity of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called days' sales in receivables

Net method

Method of recording purchases at the full invoice price less any cash discounts

Gross method

Method of recording purchases at the full invoice price without deducting any cash discounts

Straight-line depreciation

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life

Units-of-production depreciation

Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage

Declining-balance method

Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value

Perpetual inventory system

Method that maintains continuous records of the cost of inventory available and the cost of goods sold

Accelerated depreciation method

Method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years

Periodic inventory system

Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available

Direct write-off method

Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts

Imprest system

Method to account for petty cash; maintains a constant balance in the fund, which equals cash plus petty cash receipts

Last-in, first-out (LIFO)

Method to assign cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold

First-in, first-out (FIFO)

Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold

Specific identification

Method to assign cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of inventory

Weighted average

Method to assign inventory cost to sales; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale that is then multiplied by the units sold to yield the cost of that sale

Retail inventory method

Method to estimate ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail

Return

Monies received from an investment; often in percent form

Closing process

Necessary end-of-period steps to prepare the accounts for recording the transactions of the next period

Gross margin

Net sales minus cost of goods sold; also called gross profit

Operating cycle

Normal time between paying cash for merchandise or employee services and receiving cash from customers

Credit memorandum

Notification that the sender has credited the recipient's account in the sender's records

Debit memorandum

Notification that the sender has debited the recipient's account in the sender's records

Cost-benefit constraint

Notion that only information with benefits of disclosure greater than the costs of disclosure need be disclosed

Inventory turnover

Number of times a company's average inventory is sold during a period; computed by dividing cost of goods sold by average inventory; also called merchandise turnover

Current liabilities

Obligations due to be paid or settled within one year or the company's operating cycle, whichever is longer

Long-term liabilities

Obligations not due to be paid within one year or the operating cycle, whichever is longer

Reversing entries

Optional entries recorded at the beginning of a period that prepare the accounts for the usual journal entries as if adjusting entries had not occurred in the prior period

Limited liability company

Organization form that combines select features of a corporation and a limited partnership; provides limited liability to its members (owners), is free of business tax, and allows members to actively participate in management

Service company

Organization that provides services instead of tangible products

Entity

Organization that, for accounting purposes, is separate from other organizations and individuals

Expenses

Outflows or using up of assets as part of operations of a business to generate sales

Limited liability

Owner can lose no more than the amount invested

Consignor

Owner of goods who ships them to another party who will sell them for the owner

Equity

Owner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets

Shareholders

Owners of a corporation; also called stockholders

Bookkeeping

Part of accounting that involves recording transactions and events, either manually or electronically; also called record keeping

Limited partners

Partners who have no personal liability for partnership debts beyond the amounts they invested in the partnership

Limited liability partnership

Partnership in which a partner is not personally liable for malpractice or negligence unless that partner is responsible for providing the service that resulted in the claim

Limited partnership

Partnership that has two classes of partners, limited partners and general partners

Lessor

Party to a lease who grants another party (the lessee) the right to possess and use its property

Lessee

Party to a lease who secures the right to possess and use the property from another party (the lessor)

Withdrawals

Payment of cash or other assets from a proprietorship or partnership to its owner or owners

Internal users

Persons using accounting information who are directly involved in managing the organization

External users

Persons using accounting information who are not directly involved in running the organization

Internal control system

Policies and procedures managers use to monitor and control business activities

Expense recognition (or matching) principle

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses

Matching (or expense recognition) principle

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses

Materiality constraint

Prescribes that accounting for items that significantly impact financial statements and any inferences from them adhere strictly to GAAP

Monetary unit assumption

Principle that assumes transactions and events can be expressed in money units

Full disclosure principle

Principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition

Going-concern assumption

Principle that prescribes financial statements to reflect the assumption that the business will continue operating

Objectivity principle

Principle that prescribes independent, unbiased evidence to support financial statement information

Conservatism constraint

Principle that prescribes the less optimistic estimate when two estimates are about equally likely

Consistency concept

Principle that prescribes use of the same accounting method(s) over time so that financial statements are comparable across periods

Business entity assumption

Principle that requires a business to be accounted for separately from its owner(s) and from any other entity

Principles of internal control

Principles prescribing management to establish responsibility, maintain records, insure assets, separate recordkeeping from custody of assets, divide responsibility for related transactions, apply technological controls, and perform reviews

Franchises

Privileges granted by a company or government to sell a product or service under specified conditions

Licenses

Privileges granted by a company or government to sell a product or service under specified conditions

Allowance method

Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realizable value

Gross profit method

Procedure to estimate inventory when the past gross profit rate is used to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale

Voucher system

Procedures and approvals designed to control cash disbursements and acceptance of obligations

Amortization

Process of allocating the cost of an intangible asset to expense over its estimated useful life

Depletion

Process of allocating the cost of natural resources to periods when they are consumed and sold

Aging of accounts receivable

Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts

Liquidation

Process of going out of business; involves selling assets, paying liabilities, and distributing remainder to owners

Journalizing

Process of recording transactions in a journal

Posting

Process of transferring journal entry information to the ledger; computerized systems automate this process

Profit margin

Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin

Debt ratio

Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts

Return on assets

Ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on total assets or return on investment

Acid-test ratio

Ratio used to assess a company's ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities

Current ratio

Ratio used to evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities

Consignee

Receiver of goods owned by another who holds them for purposes of selling them for the owner

General ledger

Record containing all accounts (with amounts) for a business; also called ledger

Journal

Record in which transactions are entered before they are posted to ledger accounts; also called book of original entry

Capitalize

Record the cost as part of a permanent account and allocate it over later periods

Account

Record within an accounting system of increases and decreases in a specific asset, liability, equity, revenue, or expense

Debit

Recorded on the left side; an entry that increases asset and expense accounts, and decreases liability, revenue, and most equity accounts; abbreviated Dr

Credit

Recorded on the right side; an entry that decreases asset and expense accounts, and increases liability, revenue, and most equity accounts; abbreviated Cr

Accounting cycle

Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post closing trial balance (or reversing entries)

Trade discount

Reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers

Cash discount

Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period

Ordinary repairs

Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expensed

Statement of owner's equity

Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss)

Statement of retained earnings

Report of changes in retained earnings over a period; adjusted for increases (net income), for decreases (dividends and net loss), and for any prior period adjustment

Bank reconciliation

Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement

Lower of cost or market (LCM)

Required method to report inventory at market replacement cost when that market cost is lower than recorded cost

Assets

Resources a business owns or controls that are expected to provide current and future benefits to the business

Liquid assets

Resources such as cash that are easily converted into other assets or used to pay for goods, services, or liabilities

Accrued revenues

Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenue

Copyright

Right giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the creator's life plus 70 years

Leasehold

Rights the lessor grants to the lessee under the terms of a lease

Generally accepted accounting principles (GAAP)

Rules that specify acceptable accounting practices

Generally accepted auditing standards (GAAS)

Rules that specify auditing practices

Contribution margin

Sales revenue less total variable costs

Vendor

Seller of goods or services

Cash equivalents

Short-term, investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes

Petty cash

Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system

Source documents

Source of information for accounting entries that can be in either paper or electronic form; also called business papers

Work sheet

Spreadsheet used to draft an unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements

Pro forma financial statements

Statements that show the effects of proposed transactions and events as if they had occurred

Trademark or trade (brand) name

Symbol, name, phrase, or jingle identified with a company, product, or service

Plant assets

Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets

Income Summary

Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the capital account (or retained earnings for a corporation)

Purchase discount

Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period

Sales discount

Term used by a seller to describe a cash discount granted to buyers who pay within the discount period

Revenue recognition principle

The principle prescribing that revenue is recognized when earned

Discount period

Time period in which a cash discount is available and the buyer can make a reduced payment

Credit period

Time period that can pass before a customer's payment is due

T-account

Tool used to show the effects of transactions and events on individual accounts

Contributed capital

Total amount of cash and other assets received from stockholders in exchange for stock; also called paid-in capital

Authorized stock

Total amount of stock that a corporation's charter authorizes it to issue

Natural business year

Twelve-month period that ends when a company's sales activities are at their lowest point

Risk

Uncertainty about an expected return

Partnership

Unincorporated association of two or more persons to pursue a business for profit as co-owners

Electronic funds transfer (EFT)

Use of electronic communication to transfer cash from one party to another

Promissory note - (or note)

Written promise to pay a specified amount either on demand or at a definite future date; is a note receivable for the lender but a note payable for the lendee

Managerial accounting

the area of accounting that serves the decision-making needs of internal users