FSE 145 Accounting Midterm

Current Assets

Cash or other assets that will be converted into cash or consumed within one year.

Cash

Coins, currency (paper money), checks, credit card receipts, and money orders received from others, as well as money deposited in the bank.

Current Asset Ratio

Current assets divided by current liabilities

Current Ratio

Current assets divided by current liabilities.

Current Liabilities

Debts of a business that are generally paid within one year.

Deposits in Transit

Deposits that have been made and added to depositor's checkbook, but which have not yet been listed on the bank statement.

Analyzing

Determining the fundamental significance of business transactions so that financial information may be properly processed.

Cash Discounts

Discounts from quoted prices as an inducement for prompt payment of invoices.

Closing Entries

Entries made at the end of each reporting period to transfer the balances of the temporary owner's equity accounts to the permanent owner's equity account and to reduce the balance in the temporary owner's equity accounts to zero in preparation for the next accounting period.

Percentage Method

Express the major items in the balance sheet as a percent of the total assets and compare with previous fiscal periods.

• Securities and Exchange Commission (SEC) • Internal Revenue Service (IRS) • Federal Bureau of Investigation (FBI) • Homeland Security

Governmental accounting involves keeping financial records and preparing financial reports as part of the staff of federal, state, or local governmental units, such as:

Accounts Payable

If assets are numbered from 100-199, which of the following accounts would not be given a number in the 100 series? a. Cash b. Supplies c. Accounts Payable d. Prepaid Rent

Net Profit

If the total of expenses is smaller than the total of revenues, than the difference is termed: a. Net Worth b. Net Profit c. Gross Profit d. Income

Accrued Income

Income actually earned during an accounting period but which will not be received until a future period.

Debit Memorandom

Items the bank deducts from the account balance.

• Establish accounting policies • Manage the accounting system • Prepare and interpret financial statements • Prepare tax forms and do tax planning • Prepare internal reports for management

Managerial Accounting, or private accounting, involves working for a single business to:

Activity Analysis

Measures how efficiently a firm is utilizing it's assets.

Account Receivable Turnover

Measures how many times per year receivables are collected.\nCalculation - net credit sales divided by Average Accounts Receivable. Average Accounts Receivable (Beginning Accounts Receivable - Ending Accounts Receivable) divided by 2.

Age of Accounts Receivable

Measures the average time required to collect receivables.\nCalculation: 365 days divided by Inventory Turnover.

Age of Inventory

Measures the average time required to sell inventory.

Cash Payments/ Cash Disbursements

Money and money substitutes paid.

Accountant

One who is concerned with the design of the system of records, the preparation of reports based upon the recorded data, and the interpretation of the reports.

Bookkeeper/Information Processor

One who is involved in the process of recording financial information.

Employee

One who is under t he control and direction of an employer with regard to the performance of employment.

Financial statements

Periodic reports of a firm's financial position or operating results.

Assets

Property of monetary value owned by a business.

Corporation

Publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business.

Acid Test Ratio/Quick Ratio

Quick assets divided by current liabilities.

Balance Sheet Comparative Forms

Record the balance sheet data for two or more comparable periods on the same form so that the information can be readily compared.

Accrual Accounting

Recording in each fiscal period applicable expenses, whether paid or not, and income earned.

Depreciation Expense

That portion of the original cost of a fixed asset that is assigned as an expense to the reporting period expected to benefit from its use.

CR

The abbreviation for credit.

Capital

The amount by which the total assets exceed the total liabilities of a business; an owner's financial interest in a business.

Debtor

The business or individual who owes a debt.

Data Entry (Recording)

The committing of a business transaction and t he events surrounding such into writing.

Book Value/Underpreciated Cost

The cost of a fixed asset less its accumulated depreciation.

Account Balance

The difference between the total debits and the total credits in an account.

Business Papers (Source Documents)

The first record of a business transaction, such as check stubs, receipts, sales invoices, purchase invoices, cash register tapes, ect.

Blank Endorsement

The handwritten signature of the payee on the back of the check.

A debit to Prepaid Expense and a credit to Cash

The journal entry to record the payment of a prepaid expense would include: a. a debit to Prepaid Expense and a credit to Cash b. a debit to Cash and a credit to Prepaid Expense c. a debit to Utilities Expense and a credit to Cash d. a debit to Prepaid Expense and a credit to Accounts Payable

Debit

The left side of a standard account.

Depreciation

The loss in value of a fixed asset due to wear and tear and the passage of time; or a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life.

Accounting Cycle

The process involved in journalizing, posting to the ledger, taking a trial balance, preparing statements, making adjusting and closing entries, and preparing a post closing trial balance, which is repeated each fiscal period.

Bookkeeping

The recording of financial information in a prescribed manner.

Credit

The right side of a standard account.

Endorsement (Indorsement)

The signature of the payee or other holder placed on the back of a check or other negotiable instrument.

Classifying

The sorting of the many business transactions in an orderly and systematic manner.

Calendar Year

A twelve-month period beginning January 1st and concluding on December 31st.

Governmental Accounting

Accounting work performed for a federal, state, or local governmental unit.

Partnership

Business entity owned by two or more people who are legally responsible for the debts and taxes of the business

Adjusting Entries

Entries made at the conclusion of a fiscal period to bring accounts up to date.

Chronological

In accounting, to record in order of time.

•Auditing •Tax accounting •Management advisory services

Public accounting firms provide services such as:

Dr.

The abbreviation for debit

Bank Statement Reconciliation

The process by which the depositor verifies agreement between his checkbook balance and the bank statement balance.

Deposit Ticket/ Deposit Slip

A bank form which lists those cash items (currency and coin) and individual checks to be deposited.

Cash Receipts Journal

A book of original entries in which only cash receipts are recorded.

Cash Payments Journal

A book of original entry in which only cash disbursements are recorded.

Combination Journal

A book of original entry which combines into one journal the features of the two-column general journal and a special journal.

Creditor

A business or individual to whom a debt is owed.

Cashiers Check

A check drawn by a bank on its own funds and signed by an officer of the bank.

Bank Draft

A check drawn by one bank on another bank in which it has funds on deposit.

Dishonored Check

A check not paid by the bank when properly presented.

Certified Check

A check that carries the guarantee of the bank that sufficient funds are available to pay the check when it is presented.

Cancelled Check

A check that has been paid by the bank and returned to the drawer for record keeping.

Credit Balance

A condition that occurs when the total of the credits in an account is larger than the total of the debits in that account.

Debit Balance

A condition that occurs when the total of the debits in an account is larger than the total of the credits in that account.

Allowance for Doubtful Accounts (Allowance for Bad Debts)

A contra account utilized to accumulate totals against accounts receivable.

Account

A device for recording the changes (increases or decreases) in the fundamental accounting elements.

Check Stub

A form on which information is recorded by the drawer of a check concerning the check drawn; a source document.

Balance Sheet (Statement of Financial Position; Statement of Financial Condition)

A formal financial statement illustrating the assets, liabilities, and owner's equity of a business as of a specific date.

Budget

A formal written statement, which may be based upon adjusted historical data, of management's plan for the future expressed in financial terms.

Accounting

A language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial data.

Chart of Accounts

A list of all the account titles and the account numbers assigned to them.

Banker's Method/360 Day Method

A method of computing interest based on the assumption that there are 360 days in a year.

Disbursement

A payment

Drawer

A person (depositor) who signs a check, ordering a payment to be made.

Drawee

A person or concern, usually a bank, that has been ordered to make a payment of a check or draft.

Check

A piece of commercial paper drawn on funds in a bank account and payable on demand.

Cross Referencing

A process of entering the journal page number in the ledger and the ledger account number in the journal.

Double Entry Accounting

A process of recording equal debits and credits for a single business transaction.

Drawing Account/ Owner Withdrawl

A separate owner's equity account in which withdraws of cash or other assets by the owner for personal use are recorded.

Credit Memorandum

A source document that grants credit to a buyer from purchase return or purchase allowance.

Cash Short and Over

A special ledger account that is used to keep track of unexplained shortages or overages of cash.

Discount Period

A specific number of days during which a discount is available if the account is paid.

Adjusted Trial Balance

A trial balance taken after adjusting entries have been recorded.

• Public accounting • Managerial accounting • Governmental accounting

Accountants work in one of these areas:

Managerial Accounting

Accounting work carried on by an accountant employed by a single business in industry.

Bad Debts Expense/Uncollectible Accounts Expense/Loss from Uncollectible Accounts

Accounts receivable that are uncollectible.

Contra Account

An account designed to accumulate totals to offset a related account.

Compound Journal Entry

An accounting entry that involves more than two accounts.

Cash Basis Accounting

An accounting practice in which revenue is not recognized in the accounting records until received and in which expenses are not recognized until paid.

Accrued Expense

An expense incurred in operating a business during an accounting period but not yet paid.

Certified Public Accountant (CPA)

An independent accountant who provides accounting services to the public for a fee.

Certified Public Accountant/ C.P.A.

An individual possessing a college education, having practical experience in accounting and who has passed a comprehensive state examination in order to be certified to practice public accounting in that state.

Bank Statement

An itemized listing prepared by the bank of additions to and subtractions from a depositor's account.

Account Receivable

An unwritten promise by a customer to pay at a later date for goods sold or services rendered.

Account Payable

An unwritten promise to pay creditors for property such as merchandise, supplies, or equipment purchased on credit, or for services received on credit.

Accounting Equation

Assets equal liabilities plus owner's equity

Sole Proprietorship

Business entity owned by one person who is legally responsible for the debts and taxes of the business