Vocab for accounting 201 final

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160 terms · Vocab for chapters 1 through 10 of financial accounting 12th edition by warren, reeves, and Duchac

corporation

A business entity organized under State or Federal statutes as a separate legal entity is a (or a business entity in which ownership is divided into shares and stocks

financial accounting

A specailized field of accounting primarily concerned with recording and reporting
economic data to stockholders outside the business is called

ethics

Moral principles that guide the conduct of individOals are referred to as

proprietorship

A business entity owned by one individual is referred to as a

business entity concept

A concept that limits economic data in an accounting system to data related directly to activities of the business is

cost concept

A concept where amounts are initially reported in accounting records at their cost or purchase price is

Asset

Resources owned by a business

liabilities

Rights of creditors or debts of a business are called

owners equity

Rights of the owner to the assets are called

unearned rent

Liability created by receiving revenue in advance is called

prepaid expense

Items such as supplies or services such as insurance coverage that will be used in the business in the future are called

matching concept

Concept that matches expenses incurred during a period with revenues that those expenses generated is

unit of measurement concept

Concept of accounting that requires economic data be recorded in dollars is called

ledger

A group of accounts for a business entity is called a

journal

Transactions are initially entered in a record called a

posting

Process of transferring debits and credits from journal to the ledger is called

journalizing

Process of recording a transaction in a journal is called

net income

Excess of revenues over expenses is referred to as

accounts receivable

Claims against customers that result in sales on account are referred to as

public accounting

Accountants who render accounting services on a fee basis are said to be engaged in

private accounting

Accountants employed by a particular business firm are said to be engaged in (or employed by a not-for-profit organization)

GAAP

Established rules of accounting for financial reporting are

FASB

The authoritative body that has primary responsibility for developing accounting principles is

Auditing

Field of activitity involving an independant review of the accounting records is

accounting cycle

The process that begins with analyzing
and journalizing transactions and ends
with the post-closing trial balance

accounting period concept

The account ing concept that assumes that the economic life of the business can be divided into time periods.

accrual basis of accounting

Under tllis basis of accounting,
revenues and expenses are reported in
the income statement in the period in which they
are earned or incurred .

accrued expenses

Expenses that have been incurred
but not recorded in the accounts.

accrued revenues

Revenues that have been earned
but not recorded in the accounts

accumulated depreciation

The contra asset account credited when recording the depreciation of a fixed asset.

adjusted trial balance

The trial balance pre pared
after all the adjusting entries have been posted.

adjusting entries

The journal entries that bring the
accounts up to date at the end of the accounting period.

adjusting process

An analysis and updating of the
accounts when financial statements are prepared.

book value of the asset (or net book value)

The difference between the cost of a fixed asset and its accumulated depreciation.

cash basis of accounting

Under this basis of accounting, revenues and expenses are reported in
the income statement in the period in which cash is received or paid.

closing entries

The entries that transfer the balances
of the revenue, expense, and drawing accounts to the owner's capital account.

contra account (or contra asset account)

An account offset against another account.

current assets

Cash and other assets that are expected
to be converted to cash or sold or used
up, usually within one year or less, through the normal operations of the business

current liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets.

current ratio

A financial ratio that is computed by
dividing current assets by current liabilities.

depreciation

The systematic periodic transfer of the
cost of a fixed asset to an expense account during its expected useful life

depreciation expense

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

fiscal year

The annual accounting period adopted by
a business.

fixed assets (or plant assets)

Long-tenn or relatively
pem1anent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time.

Income Summary

An account to which the revenue
and expense account balances are transferred at the end of a period.

long-term liabilities

Liabilities that us ually will not be due for more than one year.

matching concept (or matching principle)

concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

natural business year

A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle.

notes receivable

A customer's written promise to
pay an amount and possibly interest at an agreed-upon rate.

objectivity concept

A concept of accounting that requires
accounting records and the data reported
in financial statements to be based on objective evidence.

owner's equity

The owner's right to the assets of
the business.

real (permanent) accounts

Term for balance sheet accounts because they are relatively permanent and carried forward from year to year.

revenue recognition concept

The accounting concept
that supports reporting revenues when the
services are provided to customers.

solvency

The ability of a firm to pay its debts as they come due.

temporary (nominal) accounts

Accounts that report amounts for only one period.

unearned revenue

The liability created by receiving revenue in advance.

working capital

The excess of the current assets of a business over its current liabilities.

account form

The form of balance sheet that resembles
the basic format of the accounting equation,
with assets on the left side and Liabilities and
Owner's Equity sections on the right side.

accounting system

The methods and procedures
used by a business to collect, classify, summarize,
and report financial data for use by management
and external users.

accounts payable subsidiary ledger

The subsidiary ledger containing the individual accounts with suppliers

accounts receivable subsidiary ledger

The subsidiary
ledger containing the individual accounts
with customers.

administrative expenses (general expenses)

Expenses incurred in the administration or general operations of the business.

cash payments journal

The special journal in which all cash payments are recorded.

cash receipts journal

The special journal in which all cash receipts are recorded.

controlling account

The account in the general ledger
that summarizes the balances of the accounts in a subsidiary ledger.

cost of merchandise sold

The cost that is reported as an expense when merchandise is sold.

credit memorandum (credit memo)

A form used by a seller to inform the buyer of the amount the seller proposes to credit to the account receivable due from the buyer.

Customer relationship management (CRM)

Internet applications to plan and coordinate marketing and sales effort

debit memorandum (debit memo)

A form used by
a buyer to inform the seller of the amount the buyer proposes to debit to the account payable due the seller.

e-commerce

The use of the Internet for performing
business transactions.

FOB (free on board) destination

Freight terms in
which the seller pays the transportation costs
from the shipping point to the final destination.

FOB (free on board) shipping point

Freight terms
in which the buyer pays the transportation costs

general journal

The two-column form used for entries
that do not "fit" in any of the special journals.

general ledger

The primary ledger, when used in
conjunction with subsidiary ledgers, that contains all of the balance sheet and income statement accounts.

gross profit

Sales minus the cost of merchandise
sold.

internal controls

The policies and procedures used
to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations.

income from operations (operating income)

Revenues less operating expenses and service department charges for a profit or an investment center

inventory shrinkage (inventory shortage)

The
amount by which the merchandise for sale, as
indicated by the balance of the merchandise inventory
account, is larger than the total amount
of merchandise counted during the physical inventory.

invoice

The bill that the seller sends to the buyer.

Loss from operations

the excess of operating expenses over gross profit

merchandise inventory

Merchandise on hand
(not sold) at the end of an accounting period.

multiple-step income statement

A form of income statement that contains several sections, subsections, and subtotals.

other expense

Expenses that cannot be traced directly
to operations.

other income

Revenue from sources other than the
primary operating activity of a business.

periodic inventory system

The inventory system
in which the inventory records do not show the
amount available for sale or sold during the period.

perpetual inventory system

The inventory system
in which each purchase and sale of merchandise
is recorded in an inventory account

physical inventory

A detailed listing of merchandise
on hand.

purchase return or allowance

From the buyer's perspective, returned merchandise or an adjustment for defective merchandise.

purchases discounts

Discounts taken by the buyer for early payment of an invoice.

purchases journal

The journal in which all items purchased on account are recorded.

ratio of net sales to assets

Ratio that measures how effectively a company uses its assets, computed as
net sales divided by average total assets.

report form

The form of balance sheet with the Liabilities and Owner's Equity sections presented below the Assets section.

revenue journal

The journal in which all sales and services on account are recorded.

sales discounts

From the seller's perspective, discounts
that a seller may offer the buyer for early
payment.

sales returns and allowances

From the seller's perspective,
returned merchandise or an adjustment
for defective merchandise.

selling expenses

Expenses that are incurred directly
in the selling of merchandise.

segment analysis

the use of horizontal and vertical analysis to analyze contributions of various segments ro the total operating performance of a company

single-step income statement

A form of income statement in which the total of all expenses is deducted from the total of all revenues

special journals

Journals designed to be used for recording a single type of transaction

subsidiary ledger

A ledger containing individual accounts
with a common characteristic.

Supply chain management

Internet applications to plan and coordinate suppliers.

trade discounts

Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.

Average cost method

The method of inventory costing that is based on the assumption that costsw should be charged against revenue by using the wieghted average unit cost of the items sold

bank reconciliation

The analysis that details the
items responsible for the difference between the
cash balance reported in the bank statement and
the balance of the cash account in the ledger.

bank statement

A summary of all transactions
mailed to the depositor or made available online
by the bank each month.

cash

Coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions

cash equivalents

Highly liquid investments that are
usually reported with cash on the balance sheet.

cash receipts journal

The special journal in which all cash receipts are recorded.

cash short and over account

An account which has recorded errors in cash sales or errors in making change causing the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day.

compensating balance

A requirement by some
banks requiring depositors to maintain minimum
cash balances in their bank accounts.

electronic funds transfer (EFT)

A system in which computers rather than paper (money, checks, etc.) are used to effect cash transactions.

elements of internal control

The control environment, risk assessment, control activities, information and communication, and monitoring

employee fraud

The intentional act of deceiving an
employer for personal gain

first-in, first-out (FIFO) inventory cost flow
method

The method of inventory costing based
on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.

gross profit method

A method of estimating inventory cost that is based on the relationship of gross profit to sales.

internal controls

The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations.

inventory turnover

The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.

last-in, first-out (LIFO) inventory cost flow method

A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.

lower-of-cost-or-market (LCM) method

A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).

net realizable value

The estimated selling price of
an item of inventory less any direct costs of disposal,
such as sales commissions.

notes receivable

A customer's written promise to pay an amount and possibly interest at an agreed upon rate.

number of days' sales in inventory

The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of goods sold.

petty cash fund

A special cash fund to pay relatively
small amounts.

physical inventory

A detailed listing of merchandise
on hand

retail inventory method

A method of estimating inventory
cost that is based on the relationship of
gross profit to sales.

ratio of cash to monthly cash expenses

Ratio that helps assess how long a company can continue to operate without additional financing or generating positive cash flows from operations.

Sarbanes-Oxley Act of 2002

An act passed by Congress to restore public confidence and trust in the financial statements of companies.

voucher

A special form for recording relevant data
about a liability and the details of its payment.

voucher system

A set of procedures for authorizing and recording liabilities and cash payments

account receivable

A claim against the customer
created by selling merchandise or services on
credit.

accounts receivable turnover

The relationship between
net sales and accounts receivable, computed
by dividing the net sales by the average
net accounts receivable; measures how frequently
during the year the accounts receivable are being
converted to cash.

aging the receivables

The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age.

allowance method

The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off.

Bad Debt Expense

The operating expense incurred
because of the failure to collect receivables.

direct write-off method

The method of accounting
for uncollectible accounts that recognizes the
expense only when accounts are judged to be
worthless.

dishonored note receivable

A note that the maker
fails to pay on the due date.

maturity value

The amount that is due at the maturity
or due date of a note.

notes receivable

A customer's written promise to pay an amount and possibly interest at an agreed upon rate.

number of days' sales in inventory

The relationship
between the volume of sales and inventory,
computed by dividing the inventory at the end of
the year by the average daily cost of goods sold.

promissory note

a written promise to pay a sum of money on demand or at a definite time

receivables

All money claims against other entities,
including people, business firms, and other organizations.

accelerated depreciation method

A depreciation
method that provides for a higher depreciation
amount in the first year of the asset's use, followed
by a gradually declining amount of depreciation.

amortization

The periodic transfer of the cost of an
intangible asset to expense.

book value

The cost of a fixed asset minus accumulated depreciation on the asset

capital expenditures

The costs of acquiring fixed
assets, adding to a fixed asset, improving a fixed
asset, or extending a fixed asset's useful life.

capital leases

Leases that include one or more provisions
that result in treating the leased assets as
purchased assets in the accounts.

copyright

An exclusive right to publish and sell a
literary, artistic, or musical composition.

depletion

The process of transferring the cost of
natural resources to an expense account.

double-declining-balance method

A method of depreciation
that provides periodic depreciation expense
based on the declining book value of a
fixed asset over its estimated life.

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