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generally accepted accounting principles
=standard accounting rules, guidelines and practices

Cost Principle

assets are shown on the balance sheet at the cost of aquisition or construction.

Accounting Period

period of time covered by a financial statement

Double-Entry Accounting

in each transaction the debits must equal the credits

Matching Principle

expenses should be recorded in the same time period as the revenue they helped to earn

Source Document

business form that serves as the original source of info that a transaction has occurred

Chart of Accounts

a list of all accounts with their name and number

Transposition Error

writing a number incorrectly (wrong order)


allocation of costs to fixed assets as they are used (decrease in value)

Perpetual inventory

continuous record of inventory

Periodic Inventory

physical count of inventory every certain number of time periods.

Bad Debts

uncollectable accounts owed by customers

Trend Analysis

interpreting accounting data from condensed financial statements and predicting future results

Quick Ratio

relationship between easily convertible assets and current liabilities
=Current Assets (easy)/Current Liabilities : 1

Equity Ratio

relationship between owner's equity and total assets
=Owner's Equity/Total Assetsx100%

Principle of Objectivity

requires that all accounting records be based on objective evidence

The Business Entity Principle

each business is considered a separate unit or entity. The financial data for a business must be kept separate from personal data.

Time-Period Principle

use the same period of time for consistency


items owned of value


debts of a business

Personal Equity

A person's net worth.


group of accounts


money earned after expenses paid
-->increase in owner's equity


amount earned from sales of goods


costs of items or services used in the operation of the business.

Accrual Basis of Accounting

recording revenue when it is earned; recording expense when it happens


record of transactions in chronological order

General Journal

main journal in a business

Source Document/examples

a business form that serves as the original source of information that a transaction has occurred
-cash sales slip
-sales invoice
-purchase invoice
-cheques issued
-cheques received
-bank credit memo


multi-column form used in preparing financial statements

Accolunts Receivable Control Account

represents the sum of all the individual accounts receivable

Accounts Payable control account

represents the sum of all the indicidual accounts payable

current Assets

converted into cash or used up within 1 year

Liquidity Order

order/speed that something can be converted into cash


accounting changes recorded to ensure that account balances are correct


offset the value of another account

Straight Line Depreciation

same amount of depreciation each period

Declining Balance

greater amount of depreciation in the early years
% of depreciation on book value

Capital Cost Allowance

method of depreciation used under the income tax act

Principle of conservatism

accountants should choose accounting methods that result in lower net income and net assets

Temporary Accounts

accounts that do not carry over period to period


cash on delivery

Receipt of Invoice

payment when invoice received


goods purchased by a merchandise company with the objective of resale

Schedule of Cost of Goods Sold

Merchandise Inventory, Dec1
Add: Purchases
Less: Purchases Returns/Allowances
Purchases Discounts
Net Purchase Cost
Add: Transportation-in
Total Cost of Merchandise Purchased
Cost of Merchandise Avaiable for Sale
Less: Merchandise Inventory, Dec 31
Cost of Goods Sold

Subsidiary ledger

group of accounts of one type

Direct Posting

recording information from the source documents directly into subsidiary ledgers

Journalizing Batch Tools

recording the total of a number of source documents of one type in a single entry

Condensed Income Statement Base Figure?

net Sales

Condensed Balance Sheet Base Figures?

Total Assets
Owner's Equity

Current Ratio

Current Assets/Current Liabilities:1

Merchandise Turnover

C.O.G.S/average Inventory

Accounts Receivable Collection Period

Average Accounts Receivable/Net Sales on Credit x365

Debt Ratio

Total Debt/Total Assets x100%

Rate of Return on Average Owner's Equity

Net Income/Average Owner's Equity x100%

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