Upgrade to remove ads
Only $2.99/month

Accounting

Terms in this set (301)

accounting
The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties
accounting system
A process designed to accumulate, classify, and summarize financial data
auditing
The review of financial statements to assess their fairness and adherence to generally accepted accounting principles
auditor's report
An independent accountant's review of a firm's financial statements
certified public accountant
An independent accountant who provides accounting services to the public for a fee
corporation
A publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business
creditor
One to whom money is owed
discussion memorandum
An explanation of a topic under consideration by the Financial Accounting Standards Board
economic entity
A business or organization whose major purpose is to produce a profit for its owners
entity
Anything having its own separate identity, such as an individual, a town, a university, or a business
exposure draft
A proposed solution to a problem being considered by the Financial Accounting Standards Board
financial statements
Periodic reports of a firm's financial position or operating results
financial statement headings
Answer three questions -
Who (company name)
What (the report title)
When (the date of the transaction)
generally accepted accounting principles (GAAP)
Accounting standards developed and applied by professional accountants
governmental accounting
Accounting work performed for a federal, state, or local governmental unit
international accounting
The study of accounting principles used by different countries
management advisory services
Services designed to help clients improve their information systems or their business performance
managerial accounting
Accounting work carried on by an accountant employed by a single business in industry
partnership
A business entity owned by two or more people who are legally responsible for the debts and taxes of the business
public accountants
Members of firms that perform accounting services for other companies
separate entity assumption
The concept of keeping a firm's financial records separate from the owner's personal financial records
social entity
A nonprofit organization, such as a city, public school, or public hospital
sole proprietorship
A business entity owned by one person who is legally responsible for the debts and taxes of the business
Statements of Financial Accounting Standards
Accounting principles established by the Financial Accounting Standards Board
stock
Certificates that represent ownership of a corporation
stockholders
The owners of a corporation; also called shareholders
tax accounting
A service that involves tax compliance and tax planning
accounts payable
Amounts a business must pay in the future
accounts receivable
Claims for future collection from customers
assets
Property owned by a business
balance sheet
A formal report of a business's financial condition on a certain date; reports the assets, liabilities, and the owner's equity of the business
break even
A point at which revenue equals expenses
business transaction
A financial event that changes the resources of a firm
capital
Financial investment in a business; equity
equity
An owner's financial interest in a business
expense
An outflow of cash, use of other assets, or incurring of a liability
fair market value
The current worth of an asset or the price the asset would bring if sold on the open market
fundamental accounting equation
The relationship between assets and liabilities plus owner's equity
income statement
A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expenses
liabilities
Debts or obligations of a business
net income
The result of an excess of revenue over expenses
net loss
The result of an excess of expenses over revenue
on account
An arrangement to allow payment at a later date; also called a charge account or open-account credit
owner's equity
The financial interest of the owner of a business; also called proprietorship or net worth
revenue
An inflow of money or other assets that results from the sales of goods or services or from the use of money or property; also called income
statement of owner's equity
A formal report of changes that occurred in the owner's financial interest during a reporting period
withdrawals
Funds taken from the business by the owner for personal use
account balance
The difference between the amounts recorded on the the two sides of the account
accounts
written records of the assets, liabilities, and owner's equity of a business
chart of accounts
a list of the accounts used by a business to record its financial transactions
classification
A means of identifying each account as an asset, liability, or owner's equity
credit
an entry on the right side of the account; Decreases to asset accounts are recorded as credits
debit
an entry on the left side of the account; Increases to asset accounts are recorded as debits
double-entry system
an accounting system that involves recording the effects of each transaction as debits and credits
drawing account
a special type of owner's equity account set up to record the owner's withdrawal of cash from the business
footing
a small pencil figure written at the base of an amount column showing the sum of the entries in the column
normal balance
The increase side of the account
permanent balance
...
slide
occurs when a decimal point is misplaced
T account
a type of account, resembling a T, used to analyze the effects of a business transaction
temporary account
...
transposition
an accounting error that occurs when the digits of a number are switched
trial balance
a statement to test the accuracy of total debits and credits after transactions have been recorded; The items in the Trial Balance should be grouped as follows: Assets and Liabilities (in order of their liquidity). Equity, Revenues, and Expenses
accounting cycle
a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information
audit trail
a chain of references that makes it possible to trace information, locate errors, and prevent fraud
balance ledger form
a ledger account form that shows the balance of the account after each entry is posted
chronological order
organized in the order in which the events occur
compound entry
a journal entry with more than one debit or credit
correcting entry
a journal entry made to correct an erroneous entry
general journal
a financial record for entering all types of business transactions; a record of original entry; all-purpose
general ledger
a permanent, classified record of all accounts used in a firm's operation; a record of final entry
journal
The record of original entry
journalizing
recording transactions in a journal
ledger
The record of final entry
posting
transferring data from a journal to a ledger
In general ledger accounts, the balance sheet accounts appear first and are followed by the income statements. The order is:
assets
liabilities
owner's equity
revenue
expenses
account form balance sheet
a balance sheet that lists assets on the left and liabilities and owner's equity on the right (see Report form balance sheet)
adjusting entries
a journal entry made to update accounts for items that were not recorded during the accounting period
book value
that portion of an asset's original cost that has not yet been depreciated
contra account
an account with a normal balance that is opposite that of a related account
contra asset account
an asset account with a credit balance, which is contrary to the normal balance of an asset account
depreciation
allocation of the cost of a long-term asset to operations during its expected lifetime
prepaid expenses
expense items acquired, recorded, and paid for in advance of their use
report form balance sheet
a balance sheet that lists the asset accounts first, followed by liabilities and owner's equity
salvage value
an estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life
straight-line depreciation
allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life
worksheet
a form used to gather all data needed at the end of an accounting period to prepare financial statements
closing entries
Journal entries that transfer the results of operations (net income or net loss) to owner's equity and reduce the revenue, expense, and drawing account balances to zero
Income summary account
A special owner's equity account that is used only in the closing process to summarize the results of operations
interpret
To understand and explain the meaning and importance of something (such as financial statements)
postclosing trial balance
A statement that is prepared to prove the equality of total debits and credits after the closing process is completed
accounts receivable ledger
a subsidiary ledger that contains credit customer accounts
charge-account sales
sales made through the use of open-account credit or one of various types of credit cards
contra revenue account
an account with a debit balance, which is contrary to the normal balance for a revenue account
control account
an account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger
credit memorandum
a note verifying that a customer's account is being reduced by the amount of sales returns or sales allowance plus any sales tax that may have been involved
invoice
a customer billing for merchandise bought on credit
list price
an established retail price
manufacturing business
a business that sells goods that it has produced
merchandise inventory
the stock of goods a merchandising business keeps on hand
merchandising business
a business that sells goods purchased for resale
net price
The list price less all trade discounts
net sales
the difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account
open-account credit
a system that allows the sale of services or goods with the understanding that payment will be made at a later date
retail business
a business that sells directly to individual customers
sales allowance
a reduction in the price originally charged to customers for goods or services
sales journal
a special journal used to record sales of merchandise on credit
sales return
a firm's acceptance of a return of goods from a customer
sales returns and allowances
a contra revenue account where sales returns and sales allowances are recorded; sales returns and allowances are subtracted from sales to determine net sales
schedule of accounts receivable
a listing of all balances of the accounts in the in accounts receivable subsidiary ledger
service business
a business that sells services
special journal
a journal used to record only one type of transaction
subsidiary ledger
a ledger dedicated to accounts of a single type and showing details to support a general ledger account
trade discount
a reduction from list price
wholesale business
a business that manufactures or distributes goods to retail businesses or large consumers such as hotels and hospitals
accounts payable ledger
a subsidiary ledger that contains a separate account for each creditor
cash discount
a discount offered by suppliers for payment received within a specified period of time
cost of goods sold
the actual cost to the business of the merchandise sold to customers
Freight In account
an account showing transportation charges for items purchased
purchase allowance
a price reduction from the amount originally billed
purchase invoice
a bill received for goods purchased
purchase order
an order to the supplier of goods specifying items needed, quantity, price, and credit terms
purchase requisition
a list sent to the purchasing department showing the items to be ordered
purchase return
return of unsatisfactory goods
Purchases account
an account used to record cost of goods bought for resale during a period
purchases discount
a cash discount offered to the customer for payment within a specified period
purchases journal
a special journal used to record the purchases of goods on credit
receiving report
a form showing quantity and condition of goods received
sales discount
a cash discount offered by the supplier for payment within a specified period
sales invoice
a supplier's billing document
schedule of accounts payable
a list of all balances owed to creditors
bank reconciliation statement
a statement that accounts for all differences between the balance on the bank statement and the book balance of cash
blank endorsement
a signature of the payee written on the back of the check that transfers ownership of the check without specifying to whom or for what purpose
bonding
the process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds
canceled check
a check paid by the bank on which it was drawn
cash
in accounting, currency, coins, checks, money orders, and funds on deposit in a bank
cash payments journal
a special journal used to record transactions involving the payment of cash
cash receipts journal
a special journal used to record and post transactions involving the receipt of cash
cash register proof
a verification that the amount of currency and coins in a cash register agrees with the amount shown on the cash register audit tape
Cash Short or Over account
an account used to record any discrepancies between the amount of currency and coins in the cash register and the amount shown on the audit tape
check
a written order signed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business
debit memorandum
a form that explains any deduction, other than a deposit, to a checking account
deposit in transit
a deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement
deposit slip
a form prepared to record the deposit of cash or checks to a bank account
dishonored (NSF) check
a check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check
drawee
The bank on which a check is written
drawer
the person or firm issuing a check
electronic funds transfer (EFT)
an electronic transfer of money from one account to another
endorsement
a written authorization that transfers ownership of a check
full endorsement
a signature transferring a check to a specific person, firm, or bank
negotiable
a financial instrument whose ownership can be transferred to another person or business
outstanding checks
checks that have been recorded in the cash payments journal but have not yet been paid by the bank
payee
the person or firm to whom a check is payable
petty cash analysis sheet
a form used to record transactions involving petty cash
petty cash fund
a special-purpose fund used to handle payments involving small amounts of money
petty cash voucher
a form used to record the payments made from a petty cash fund
postdated check
a check dated some time in the future
promissory note
a written promise to pay a specified amount of money on a specific date
restrictive endorsement
a signature that transfers a check to a specific party for a stated purpose
service charge
a fee charged by a bank to cover the costs of maintaining accounts and providing services
statement of account
a form sent to a firm's customers showing transactions during the month and the balance owed
commision basis
a method of paying employees according to a percentage of net sales
employee
a person who is hired by and works under the control and direction of the employer
Employee's Withholding Allowance Certificate (Form W-4)
a form used to claim exemption (withholding) allowances
exempt employees
salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour law
federal unemployment taxes
Taxes levied by the federal government against employers to benefit unemployed workers
hourly rate basis
a method of paying employees according to a stated rate per hour
independent contractor
one who is paid by a company to carry out a specific task or job but is not under the direct supervision or control of the company
individual earnings record
an employee record that contains information needed to compute earnings and complete tax reports
medicare tax
a tax levied on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65
payroll register
a record of payroll information for each employee for a pay period
piece-rate basis
a method of paying employees according to the number of units produced
salary basis
a method of paying employees according to an agreed-upon amount for each week or month
Social Security Act
a federal act providing certain benefits for employees and their families; officially the Federal Insurance Contributions Act
social security (FICA) tax
a tax imposed by the Federal Insurance Contributions Act and collected on employee earnings to provide retirement and disability benefits
state unemployment taxes
taxes levied by a state government against employers to benefit unemployed workers
tax-exempt wages
earnings in excess of the base amount set by the Social Security Act
time and a half
rate of pay for an employee's work in excess of 40 hours a week
wage-bracket table method
a simple method to determine the amount of federal income tax to be withheld using a table provided by the government
workers' compensation insurance
Insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment
Employer's Annual Federal Unemployment Tax Return (Form 940)
Preprinted government form used by the employer to report unemployment taxes for the calendar year
Employer's Quarterly Federal Tax Return (Form 941)
Preprinted government form used by the employer to report payroll tax information relating to social security, medicare, and employee income tax withholding to the IRS
experience rating system
A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate
Transmittal of Wage and Tax Statements (Form W-3)
Preprinted government form submitted with Forms W-2 to the Social Security Administration
unemployment insurance program
A program that provides unemployment compensation through a tax levied on employers
Wage and Tax Statement (Form W-2)
Preprinted government form that contains information about an employee's earnings and tax withholdings for the year
accrual basis
a system of accounting by which all revenues and expenses are matched and reported on financial statements for the applicable period, regardless of when the cash related to the transaction is received or paid
accrued expenses
expense items that relate to the current period but have not yet been paid and do not yet appear in the accounting records
accrued income
Income that has been earned but not yet received and recorded
deferred expenses
prepaid expenses
deferred income
unearned income
inventory sheet
a form used to list the volume and type of goods a firm has in stock
net income line
the worksheet line immediately following the column totals on which net income (or net loss) is recorded in two places; the Income Statement section and the Balance Sheet sections
property, plant, and equipment
long-term assets that are used in the operation of a business and that are subject to depreciation (except for land, which is not depreciated)
unearned income
income received before it is earned
updated account balances
the amounts entered in the Adjusted Trial Balance section of the worksheet
classified financial statement
a format by which revenues and expenses on the income statement, and assets and liabilities on the balance sheet, are divided into groups of similar accounts and a subtotal is given for each group
current assets
assets consisting of cash, items that normally will be converted into cash within one year, or items that will be used up within one year
current liabilities
debts that must be paid within one year
current ratio
a relationship between current assets and current liabilities that provides a measure of a firm's ability to pay its current debts (current ratio = current assets / current liabilities)
gross profit
the difference between net sales and the cost of goods sold (gross profit = net sales - cost of goods sold)
gross profit percentage
the amount of gross profit from each dollar of sales (gross profit percentage = gross profit / net sales)
inventory turnover
the number of times inventory is purchased and sold during the accounting period (inventory turnover = cost of goods sold / average inventory)
liquidity
the ease with which an item can be converted into cash
long-term liabilities
debts of a business that are due more than one year in the future
multiple-step income statement
a type of income statement on which several subtotals are computed before the net income is calculated
plant and equipment
property that will be used in the business for longer than one year
reversing entries
journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid problems in recording future payments or receipts of cash in a new accounting period
single-step income statement
a type of income statement where only one computation is needed to determine the net income (net income = total revenue - total expenses)
working capital
the difference between current assets and current liabilities. It is a measure of the firm's ability to pay current obligations
conceptual framework
a basic framework developed by the FASB to provide conceptual guidelines for financial accounting and statements; the most important topics are explanations of qualitative features of financial statements, basic assumptions underlying statements, basic accounting principles, and modifying constraints
conservatism
if alternative treatment of items are of equal validity, the conservatism constraint suggests that the alternative resulting in lowest profits should be used
cost-benefit test
if account concepts suggests a particular accounting treatment for an item but it appears that the theoretically correct treatment would require an unreasonable amount of work, the accountant may analyze the benefits and costs of the preferred treatment to see if the benefit gained from its adoption is justified by the cost
full disclosure principle
all information that might affect the user's interpretation of the profitability and financial condition of a business should be disclosed
going concern assumption
the assumption that a business will continue to operate indefinitely
historical cost basis principle
the principle that requires assets and services to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in the asset accounts
industry practice constraint
in a few limited cases, the unusual operating characteristics of an industry, usually based on risk, special accounting principles, and procedures, have been developed; these may not conform completely with GAAP for other industries
matching principle
the concept that revenues and the costs incurred in earning those revenues should be matched in the appropriate accounting periods
materiality constraint
in some cases where an accounting item is deemed too small to affect a user's decisions, the "required" accounting may be ignored
monetary unit assumption
it is assumed that only those items and events that can be measured in monetary terms are included in the financial statements. An inherent part of this assumption is that the monetary unit is stable. Thus, assets purchased one year may be combined in the accounts with those purchased in other years even though the dollars used in each year actually may have different purchasing power
neutrality concept
the concept that information in financial statements cannot be selected or presented in a way to favor one set of interested parties over another
periodicity of income assumption
the idea that economic activities of an entity can be divided logically and identified with specific time periods, such as the year or quarter
private sector
the nongovernmental sector of society; in an accounting context, it is the business sector, represented in the accounting rule-making process by the Financial Accounting Standards Board
public sector
the governmental sector, represented in the accounting rule-making process by the Securities and Exchange Commission
qualitative characteristic
necessary characteristics that must be present in financial statements if they are to be credible
realization
realization of revenue takes place only when cash, a financial claim, or other consideration is received for the sale of goods or services
revenue recognition principle
revenue is recognized when it has been earned and realized
separate economic entity assumption
concept that a business is separate from its owner or owners and the financial statements reflect the affairs of the business, not those of the owner
transparency
information that is provided in the financial statements and the notes accompanying them should provide a clear and accurate picture of the financial affairs of the company. Key is disclosure
aging the accounts receivable
classifying accounts receivable balances according to how long they have been outstanding
allowance method
a method of recording uncollectible accounts that estimates losses from uncollectible accounts and charges them to expense in the period when the sales are recorded
direct charge-off method
a method of recording uncollectible account losses as they occur
valuation account
an account, such as Allowance for Doubtful Accounts, whose balance is revalued or reappraised in light of reasonable expectations
accounting information systems
collect and process data from transactions and events, organize them in useful reports, and communicate results to decision makers
the control principle
prescribes that an accounting system needs to have internal controls
internal controls
are methods and procedures allowing managers to control and monitor business activities
the relevance principle
prescribes that an accounting information system report useful, understandable, timely, and pertinent information for effective decision making
the compatibility principle
prescribes that an accounting information system conform with a company's activities, personnel, and structure
the flexibility principle
prescribes that an accounting information system be able to adapt to changes in the company, business environment, and needs of decision makers
the cost-benefit principle
prescribes that the benefits from an activity in an accounting information system outweigh the cost of that activity
5 basic components of accounting systems
source documents, input devices, information processors, information storage, and output devices
bank draft
a check written by a bank that orders another bank to pay the stated amount to a specific party
banker's year
A 360-day period used to calculate interest on a note
bill of lading
A business document that lists goods accepted for transportation
cashier's check
a draft on the issuing bank's own funds
commercial draft
a note issued by one party that orders another party to pay a specified sum on a specified date
contingent liability
An item that can become a liability if certain things happen
discounting
Deducting the interest from the principle on a note payable or receivable in advance
face value
An amount of money indicated to be paid, exclusive of interest or discounts
maturity value
The total amount (principal + interest) payable when a note becomes due
negotiable instrument
A financial document containing a promise or order to pay that meets all the requirements of the Uniform Commercial Code in order to be transferrable to another party
note payable
a liability representing a written promise by the maker of the note (the debtor) to pay another party (the creditor) a specified amount at a specified future date
note receivable
an asset representing a written promise by another party (the debtor) to pay the note holder (the creditor) a specified amount at a specified future date
principal
The amount shown on the face of the note
sight draft
a commercial draft that is payable on presentation
time draft
a commercial draft that is payable during a specified period of time
trade acceptance
a form of commercial time draft used in transactions involving the sale of goods
average cost method
a method of inventory costing using the average cost of units of an item available for sale during the period to arrive at cost of the ending inventory
first in, first out (FIFO) method
A method of inventory costing that assumes the oldest merchandise is sold first
gross profit method
A method of estimating inventory cost based on the assumption that the rate of gross profit on sales and the ratio of cost of goods sold to net sales are relatively constant from period to period
last in, first out (LIFO) method
a method of inventory costing that assumes that the most recently purchased merchandise is sold first
lower of cost or market rule
the principal by which inventory is reported at either its original cost or its replacement cost, whichever is lower
markdown
price reduction below the original markon
market price
the price the business would pay to buy an item of inventory through usual channels in usual quantities
markon
the difference between the cost and the initial retail price of merchandise
markup
a price increase above the original markon
periodic inventory
inventory based on a periodic count of goods on hand
perpetual inventory
inventory based on a running total of number of units
physical inventory
an actual count of the number of units of each type of good on hand
retail method
a method of estimating inventory cost by applying the ratio of cost to selling price in the current accounting period to the retail price of the inventory
specific identification method
a method of inventory costing based on the actual cost of each item of merchandise
accelerated method of depreciation
a method of depreciating asset cost that allocates greater amounts of depreciation to an asset's early years of useful life
amortization
the process of periodically transferring the acquisition cost of intangible assets with estimated useful lives to an expense account
capitalized cost
all costs recorded as part of an asset's costs
declining-balance method
an accelerated method of depreciation in which an asset's book value at the beginning of a year is multiplied by a constant percentage (equal to double the straight-line rate) to determine depreciation for the year
depletion
allocating the cost of a natural resource to expense over the period in which the resource produces revenue
double-declining-balance-method
a method of depreciation that uses a rate equal to twice the straight-line rate and applies that rate to the book value of the asset at the beginning of the year
gain
the disposition of an asset for more than its book value
goodwill
the value of a business in excess of the net value of its identifiable assets
impairment
a situation that occurs when the asset is determined to have a market value or a value in use less than its book value
income tax method
a method of recording the trade-in of an asset for income tax purposes. It does not permit a gain or loss to be recognized on the transaction
intangible assets
assets that lack a physical substance, such as goodwill, patents, copyrights, and computer software
loss
the disposition of an asset for less than its book value
net book value
the cost of an asset minus its accumulated depreciation, depletion, or amortization
net salvage value
the salvage value of an asset less any costs to remove or sell an asset
patent
an exclusive right given by the U.S. Patent Office to manufacture and sell an invention for a period of 17 years from the date the patent is granted
real property
assets such as land, land improvements, buildings, and other structures attached to the land
recoverability test
test for possible impairment that compares the asset's net book value with the estimated net cash flows from future use of the asset
residual value
the estimate of the amount that could be obtained from the sale or disposition of an asset at the end of its useful life; also called salvage or scrap value
sum-of-the-years'-digits method
a method of depreciating asset costs by allocating as expense each year a fractional part of the asset's depreciable cost, based on the sum of the digits of the number of years in the assets useful life
units-of-production method
a method of depreciating asset cost at the same rate for each unit produced during each period
dissolution
the legal term for termination of a partnership
distributive share
the amount of net income or net loss allocated to each partner
general partner
a member of a partnership who has unlimited liability
liquidation
termination of a business by distributing all assets and discontinuing the business
The Control Principle
prescribes that an AIS have internal controls
Internal Controls
are methods and precedured allowing managers to control and monitor business activities. They include policies to direct operations towards common goals, procedures to ensure reliable financial reports, safeguards to protect company assets, and methods to achieve compliance with laws and regulations.
The relevance principle
prescribes that an AIS report useful, understandable, timely, and pertinent information for effective decision making.
The Compatibility principle
prescribes that an AIS conform with a company's activities, personnel, and structure. It must work in harmony with and be driven by company goals
Flexibility Principle
prescribes that an AIS be able to adapt to changes in the company, business environment, and needs of decision makers
Cost-Benefit Principle
prescribes that the benefits from an activity in an AIS outweigh the costs of that activity
YOU MIGHT ALSO LIKE...