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