Accounting Final

Temporary Accounts

All revenue accounts, all expense accounts, gains, losses, and dividends. These accounts are closed to retained earnings at the end of the accounting period and do not carry over from year to year

Vertical Analysis/Common-Size Statements

All items on the financial statements are restated as a % of a selected item on the financial statement

Property, Plant, & Equipment

Assets also known as fixed assets, plant assets, or capital assets

Deferral Transactions

Revenue or expense transactions that are recognized after the cash is exchanged

Double Entry Accounting

Rule of accounting where at least two accounts are affected

Goodwill

The excess cost over fair market value of net assets in the acquisition of another business

Depletion

The expense of natural resources sold

Amortization

The expense of using an intangible asset over its useful life

Depreciation

The expense of using buildings, machinery or equipment over its useful life

Double Declining Balance Depreciation

The method of depreciation to depreciate an asset more in its earlier years

Units of Production Depreciation

The method of depreciation to expense an asset based on how much it is used

Useful Lives

The number of years a company plans to use an asset

Stock Splits

This is done to reduce the market value per share. Additional shares of stock are issued to current owners and par value is decreased. No journal entry

Common Stock

A stockholders' equity account that represents owner's capital contributions to the company in exchange for stock

Liabilities

Obligations and amounts owed by a business

Stockholders' Equity

Ownership claims on the assets or Assets - Liabilities

Outstanding Checks

A check that has been entered in the books but not cleared the bank statement

Debit Memo

A decrease on the bank statement such as a bank service fee

Deposit in Transit

A deposit that has been entered in the books but not cleared the bank statement

Installment Notes Payable

A liability account representing a promissory note (loan) whereby the same cash outlay is made on a regular basis to repay the loan that includes both a principal and interest portion to each payment

Notes Payable

A liability account representing principal amounts due for a loan

Bonds Payable

A liability account usually representing long-term debt, usually 20-30 years long

Unearned Revenue

A liability account, a deferral, representing deposits or cash down payments from customers. Goods or services owed to the customer

Accounts Payable

A liability account. An accrual. Amounts due for bills or inventory that have been incurred (or recognized) but not yet paid

Interest Payable

A liability account. An accrual. Interest accrued but not yet paid

Contingency Liability

A liability for a lawsuit, audit, or other detriment that should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated

Trademark

A name or symbol that identifies a company or product

Additional Paid in Capital

A permanent account representing the accumulated amount paid over par value each time a share is sold

Investing Activities

A section on the statement of cash flow reporting the outflows and inflows from the purchase and sale of long term assets

Financing Activities

A section on the statement of cash flow representing the inflows and outflows from owners and creditors

Operating Activities

A section on the statement of cash flows representing "cash basis" net income. The most important section on the statement of cash flow

Retained Earnings Definition

A stockholders' equity account that represents what's been earned and kept by the business

Conservatism in Accounting

A theory in accounting where assets are not increased to fair market value but decreased if assets are overstated

Stock Dividends

Additional shares of stock are issued to current owners. No cash is exchanged. A journal entry is done to rearrange Shareholder's Equity to lower Retained Earnings

Permanent Accounts

All asset accounts, all liability accounts, and common stock, APIC, treasury stock and retained earnings of stockholders' equity. These accounts and account balances carry over from year to year

Product Costs

All costs of inventory. Purchases, Freight-in, and any costs to get inventory ready for sale

Trail Balance

An accounting report that lists all accounts and their corresponding debit or credit balance

General Journal

An accounting report that lists all of the transactions by journal entry. For each transaction the debit is listed first and credit is listed second

Credit

An accounting term used to describe the decrease of assets or increase to liabilities and stockholders' equity

Debit

An accounting term used to describe the increase of assets or decrease to liabilities and stockholders' equity

Par Value

An arbitrary amount assigned to each share of stock. Represents the amount to be credited to Common Stock each time a share is sold. Historically, par value was the value at which the stock must be sold (or higher)

Interest Receivable

An asset account and an accrual representing interest earned by a business but the interest has not been collected in cash

Cash

An asset account encompassing all checking accounts, savings accounts, paper bills, and change owned by a business

Inventory

An asset account reflecting the cost of merchandise owned by a company

Land

An asset account representing property owned by a business. This account is never adjusted to fair market value or depreciated

Supplies

An asset account. A deferral. A stock of resources purchased by a company. At the end of the accounting period, this account will be adjusted to reflect the amount of resources used

Prepaid Expenses

An asset account. A deferral. Represents expenses paid in advance. At the end of the accounting period, the account will be adjusted to reflect expenses used up

Accounts Receivable

An asset account. An accrual. Amounts due from customers. Revenue has been earned and recognized but has not been collected in cash

Note Receivable

An asset account. When a company has excess cash, it may lend money to others to earn interest income

Credit Memo

An increase on the bank statement such as interest

Sales Tax

An obligation of a retail company to charge customers a % according to taxing authorities and remit the tax back to the taxing authorities

Payroll Liabilities

An obligation to withhold taxes on behalf of the company's employees and also accrue payroll tax expenses and remit to the taxing authorities

Maker

Another term for "borrower"

Current Assets

Assets that are cash or will turn into cash or be used up with in one year

Long Term Assets

Assets that will provide benefits to the company for more than one year

Long Term Operational Assets

Assets used in the company to produce revenues

The Accounting Equation

Assets=Liabilities+Stockholders' Equity

Retained Earnings Equation

Beginning Balance + Revenues + Gains -Expenses - Losses -Dividends

Horizontal Analysis and Trend Analysis

Comparing financial statements over time using dollar value changes and % changes

General Ledger

Complete record of accounting transactions over a period of time. Used to prepare financial statements

Bank Reconciliation

Computing the true balance of cash by comparing the bank statement with the books (general ledger)

Book Value

Cost Basis - Accumulated Depreciation

Depreciable Basis

Cost Basis - Salvage Value

Total Operating Income

Gross Margin - Operating Expenses. Represents the profit from operations on the multiple step Income Statement. Gives predictive value to the users of the Income Statement so they can see the normal and customary profit of the company

MACRS and Internal Revenue Code Section 179

Depreciation method used by companies when they file their tax return

Dividends

Distributions to the owners of a business. A reward from earnings for their ownership and contributions. NOT an expense of the company

Salvage Value

Estimated value of an asset at the end of its useful life

Annual Report

Financial Statements, Notes to the Financial Statements, Auditor's Report, and Management's Discussion and Analysis

Liquidity

How fast an asset can be turned into cash

Perpetual System of Inventory

Inventory system used by most large retail companies where the inventory account is continually updated for sales and customer returns

Periodic Inventory System

Inventory system used by most small businesses, restaurants, and/or bars. Inventory is only adjusted when the company does a physical count of inventory and "figures back" what COGS was for the period

Non-operating Items

Items like Gains and Losses that are separated out from operating items on the multiple step income statement

Patent

Legal right to produce and sell a product with unique features

Copyright

Legal right to sell music, writings, art

Franchise

Legal right to sell products under a specific brand or company in a geographical area

Warranty Liabilities

Liabilities to be accrued as an estimate of repairs, replacements, or refunds of merchandise

Profitability Ratios

Measures a company's ability to generate earnings and how efficient they are at using assets and amounts invested by owners to generate income

Solvency Ratios

Measures a company's long-term debt paying ability and financing structure

Liquidity Ratios

Measures a company's short-term debt paying abilities focusing on current assets and/or current liabilities

Cost of Goods Sold

Net Inventory Expense. COGS + Shrinkage - Cost of Returns

Gross Margin or Gross Profit

Net Sales - COGS. Matching Sales of Inventory with the Cost of Inventory

Shares Authorized

Number of shares a company can sell to the public

Shares Issued and Outstanding

Number of shares held by the public

Period Costs

Operating expenses that are not product costs but are other other expenses involved in being a retail business. Selling, general and administrative expenses that are usually expensed in the period incurred

Payee

Person lending money in exchange for interest

Incurred

Recognized

Fundamental Rules of Accrual (GAAP) Accounting

Record income when earned, record expenses when incurred, not necessarily when cash is exchanged

FIFO, LIFO, Weighted Average

Refers to methods on how to calculate Cost of Goods Sold in an inventory system

Assets

Resources of a business

Accrual Transactions

Revenue or expense transactions that have been recognized before the cash is exchanged

Matching Concept

Revenues (benefits) are matched with expenses (sacrifices) to give an accurate picture of profit

Net Sales Revenue

Sales Revenue - Sales Returns - Sales Discounts

Treasury Shares

Shares reacquired by the company.

Straight Line Depreciation

The method of evenly expensing a tangible asset over its useful life

Capitalizing Costs

To record costs as an asset or part of an asset, not an expense

Cost Basis

Total amount of costs associated with an asset to get it to its intended purpose for the company

Principal

Total amount of money borrowed

Asset Use Transactions

Transactions that decrease total assets and decrease total claims

Asset Source Transactions

Transactions that increase total assets and increase total claims

Asset Exchange Transactions

Transactions where one asset account increases and other asset decreases. Total assets remain unchanged

Claims Exchange Transactions

Transactions whereby one claims account increases and one claims account decreases. Total claims remain unchanged