Module 4 Chapter 4

Long-term investments

Investments in stocks & bonds of other companies that companies normally hold for many years; Long-term assets, such as land & buildings, not currently being used in operating activities; & long-term notes receivable.

Long-term liabilities

Obligations that a company expects to pay after one year.

Current liabilities

Obligations that a company expects to pay within the coming year or its operating cycle, whichever is longer

Liquidity

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

Operating cycle

The average time that it takes to purchase inventory, sell it on account, & then collect cash from customers

After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the

adjusted trial balance

The operating cycle of a company is determined by the number of years the company has been operating.

false

The information for preparing a trial balance on a worksheet is obtained from

general ledger accounts

stockholder's equity

The ownership claim of shareholders on total assets. It's to a corporation what owner's equity to a proprietorship

Current assets are customarily the first items listed on a classified balance sheet.

True

A liability is classified as a current liability if the company is to pay it within the upcoming year.

true

Post-closing trial balance

A list of permanent accounts & their balances after a company has journalized & posted closing entries.

Worksheet

A multiple-column form used in the adjustment process and in preparing financial statements

Temporary (nominal) accounts

Accounts that relate only to a given accounting period. Consist of all income statement accounts & owner's drawings account. All temporary accounts are closed at end of the accounting period.

Permanent (real) accounts

Accounts that relate to 1 or more future accounting periods. Consists of all balance sheet accounts. Balances are carried forward to the next accounting.

Reversing entry

An entry, made at the beginning of the next accounting period that's the exact opposite of the adjusting entry made in the previous period

Current assets

Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer

Property, plant, & equipment

Assets w/relatively long useful lives & currently being used in operations

Closing Entries

Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent owner's equity account, owner's capital

Classified balance sheet

a balance sheet that contains standard classifications or sections

Income summary

a temporary account used in closing revenue and expense accounts

Correcting entries

entries to correct errors made in recording transactions

Intangible assets

long-lived assets that don't have physical substance