Financial Accounting

What is a receivable?

Amount owed to the company for provided products/services.

Accrued expenses

Costs incurred but unpaid and unrecorded

Materiality

Items impacting investors' decision-making

What is an adjusting entry?

Journal entry at the end of an accounting period to update asset/liability accounts.

Revenue recognition principle

Revenue is recognized when goods or services are delivered

Supplies

Tangible resources owned by a company for future use

What is a statement of retained earnings?

A financial statement that explains changes in equity over a period of time.

What is a corporation?

A separate legal entity with the same rights and responsibilities as a person.

What is a Contra account?

Account linked with another account and having an opposite normal balance.

What is the Measurement/Cost principle?

Accounting information is measured on a cash or equal-to-cash basis.

Salvage value

Estimated amount recovered at end of asset's useful life

What is an audit?

Examination of financial statements for proper concepts and rules.

What do operating activities include?

Expenditures related to administering the business.

Depreciation

Expense of allocating cost of assets over their useful life

What is the expense recognition/matching principle?

Expenses recorded when work generates revenue

What is the fraud triangle?

Factors that push a person to commit illegal acts: opportunity, pressure, rationalization.

What is the statement of cash flows?

Final financial statement with operating, investing, and financing activities

What is merchandise inventory?

Goods that a company owns and expects to sell.

What is the Financial Accounting Standards Board (FASB)?

Group setting concepts and rules for financial reporting in the US.

What is a classified balance sheet?

Groups accounts into categories with current items first

Revenues

Increase equity from providing products/services

What is common stock?

Increase in equity from owner's investment

Debit

Left side of an account, increases assets

What is a mortgage?

Legal loan agreement that protects a lender by giving the lender the right to be paid from the cash proceeds from the sale of a borrower's assets identified in the agreement.

What is useful life?

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

What is an adjusted trial balance?

List of accounts and balances after period-end adjustments

What is an unadjusted trial balance?

List of accounts and balances before accounting adjustments.

What is a Chart of accounts?

List of all ledger accounts with identification numbers.

Trial balance

List of ledger accounts and balances

Post-closing trial balance

List of permanent accounts after closing entries

What is Straight-line depreciation?

Method that allocates equal portions of depreciable cost to each accounting period.

What is a perpetual inventory system?

Method that maintains continuous records of inventory cost.

What is Gross profit?

Net sales minus cost of goods sold.

What are intangible assets?

Noncurrent resources used to produce or sell products or services; usually lack physical form and have uncertain benefits.

What are sales returns and allowances?

Refunds or credits given to customers by the seller for unsatisfactory merchandise. Sometimes the product is sent back to the seller and sometimes the customer keeps the product.

What is a Bank reconciliation?

Report explaining the difference between book and bank balances of cash.

Double-entry accounting

Requires accounting equation balance

What are assets?

Resources owned or controlled by a company that provide future benefits.

What are cash equivalents?

Short-term investment assets that can be easily converted to cash.

Normal balance

Side that increases the balance of an account

What is the allowance for doubtful accounts?

A contra asset account for uncollectible accounts receivable.

What are temporary accounts?

Accounts used to record revenues, expenses, and withdrawals.

What are operating activities?

Activities involving production, purchase, and sale of goods or services.

What are capital expenditures?

Additional costs of plant assets providing benefits beyond the current period.

What is amortization?

Allocating the cost of an intangible asset over its useful life.

What is the principal of a note?

Amount that the signer agrees to pay back when it matures.

What are accounts receivable?

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

Book value

Asset's acquisition cost minus accumulated depreciation

What is the expanded accounting equation?

Assets = Liabilities + Contributed capital + Retained earnings + Revenues − Expenses − Dividends.

What is the accounting equation?

Assets = Liabilities + Equity

Liquidity

Availability of resources for short-term cash requirements

What are permanent accounts?

Balance sheet accounts not closed, reflect future periods

What are current assets?

Cash and resources expected to be used within a year

Purchases discount

Cash discount granted to a purchaser

Time period assumption

Company's life divided into set periods for reporting

What are Generally Accepted Accounting Principles (GAAP)?

Concepts and rules governing financial accounting in the United States.

Liabilities

Creditors' claims on an organization's assets

What is Accumulated depreciation?

Cumulative sum of all expense recorded for a plant asset.

What are expenses?

Decreases in equity from costs of providing products and services.

Account balance

Difference between total debits and credits

What are dividends?

Distributions (cash/stock) to owners of a company, not an expense.

What is net income?

Earnings after subtracting expenses from revenues

What are closing entries?

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

Cash discount

Reduction in price for early payment

What are current liabilities?

Obligations due within one year or operating cycle.

What are Long-term liabilities?

Obligations not due to be paid within one year or the operating cycle.

What does the income statement show?

Overall profitability for a specific period

Equity

Owner's claims on company's assets

What is bookkeeping?

Part of accounting that involves recording transactions and events, either manually or electronically. Typically does not include the preparation of financial statements.

What is a prepaid expense?

Payment made before product or service is used

What is market value per share?

Price at which stock is bought or sold at a given point in time.

What is the allowance method?

Procedure to estimate bad debts expense and report accounts receivable.

What are internal controls?

Procedures to protect assets, ensure reliable accounting, and promote efficiency.

What is Aging of accounts receivable?

Process of classifying accounts receivable by how long they are past due.

Payable

Promise to pay for products/services in future

Financial accounting

Provides information for external users

What is profit margin?

Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue.

What is accrual basis accounting?

Recognizes revenues when goods/services are provided and expenses when incurred.

What is the general ledger?

Record of all accounts with balances and transactions

What is Unearned revenue?

Recorded when customers pay in advance for future products or services.

What is journalizing?

Recording transactions in the company's records.

Direct write-off method

Recording uncollectible accounts when determined

What is the accounting cycle?

Recurring steps performed each accounting period

Balance sheet

Snapshot of company's financial position

What are plant assets?

Tangible long-lived assets used to produce/sell products and services.

What are FICA taxes?

Taxes assessed on employers and employees for Social Security and Medicare programs.

What is retained earnings?

The portion of equity that represents accumulated profits.

What is a credit?

The right side of an account that increases revenue when fulfilled.

What is paid-in capital?

The total amount of assets received from stockholders in exchange for stock.

What is gross pay?

The total compensation earned by an employee.

What is net pay?

Total compensation earned by an employee after deductions.

What are investing activities?

Transactions that involve purchasing and selling long-term assets; includes making and collecting notes receivable and investments in other than cash equivalents.

Financing activities

Transactions with owners and creditors

What is Posting?

Transferring journal entry information to the ledger.

What is the Securities and Exchange Commission (SEC)?

United States agency overseeing proper use of accounting concepts and rules.

Accrued revenues

Unrecorded revenues earned but not received

What is a General journal?

Used to record transactions that change the balance in at least two accounts.

What is the par value of stock?

Value assigned to a share of stock by the corporate charter.

What is cost of goods sold?

Value of inventory sold to customers during a period. Not the price the buyer pays for the inventory.

What are notes receivable?

Written promise to obtain a specific sum of money on a specified future date; recorded by the holder of the agreement.

Bond

Written promise to pay par value and interest