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