Accounting chapter 2-3
current liabilities
shorter than one year
operating cycle
the average time between purchasing or acquiring inventory and receiving cash proceeds from its sale.
long term liabilities
those due in more than one year
adjusting entries
to record events that have occurred but have not been recorded yet
external transactions
transactions the firm conducts with a separate economic entity
prepaid expense
we paid cash for the purchase of an asset before we incurred the expense
unearned revenue
we received cash and recorded a liability before we earned the revenue
accrued revenue
when a company has earned revenue but hasn't yet received cash or recorded an amount receivable
Liability accounts
accounts payable, salaries payable, utilities payable, and taxes payable.
six step measurement process
accounts, accounting equation, debit or credit, trial balance, post, record
cash account
all transactions affecting cash are summarized in the
adjusting entry for accrued revenue
always includes a debit to an asset account and a credit to a revenue account.
basic accounting equation
assets= liabilities + stockholders equity
asset accounts
cash,supplies, and the equipment
stockholders equity balance sheet
common stock + retained earning
stockholders equity
common stock, retained earnings
internal transactions
events that effect the financial potation of the company but do not include an exchange with a separate economic entity.
adjusting entires are necessary
for transactions that involve REVENUE or EXPENSE activity at the end of the period
classified balance sheet
groups a company assets, liabilities, and stockholders equity accounts into several standard categories.
adjusted trial balance
is a list of all accounts and their balances after we have updated account balances for adjusted entries.
chart of accounts
list of all account names used to record transactions of a company is
account
provides a summary of the effects of all transactions related to a item over a period of time.
accounts receivable
revenue also accrues when a firm performs services but has not yet collected cash or billed the customer
net income, income statement
revenues-exspenses= net income