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Accounting Vocabulary Test 1
Terms in this set (40)
a resource owned by a company that has measurable value and is expected to provide future benefits.
an asset that will be used up or turned into cash within the next 12 months.
a debt or obligation arising from past transactions or events, which the company is likely to pay, settle, or fulfill by sacrificing resources in the future.
a debt or obligation that will be paid, settled, or fulfilled within one year.
the amount of financing (cash and sometimes other assets) provided to the company by stockholders in exchange for shares of common stock.
the cumulative earnings of a company that are not distributed to the owners and instead are reinvested in the business.
The basic accounting equation is
Assets = Liabilities + Stockholders' Equity.
the left side of a T-account
the right side of a T-account
Duality of effects
every transaction affects at least two accounts.
the accounting equation must remain in ___________ after each transaction.
Liabilities + Stockholders' Equity
The cost principle
requires that assets and liabilities be recorded at their original cost to the company.
a system of analyzing, recording, and summarizing the results of a business's activities and then reporting them to decision makers.
focuses on preparing and using the financial statements that are made available to owners and external users such as customers, creditors, and potential investors who are interested in reading them.
focuses on other accounting reports that are not released to the general public, but instead are prepared for internal decision making and used by employees, supervisors, and managers who run the company.
These activities are directly related to earning profits. They include buying supplies, making products, serving customers, cleaning the premises, advertising, renting a building, repairing equipment, and obtaining insurance coverage.
These activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others.
Any borrowing from banks, repaying bank loans, receiving contributions from stockholders, or paying dividends to stockholders are considered financing activities.
The heading of each of the four primary financial statements should include the following
Name of the business, Name of the statements, Date of the statement, or the period of time that the statement covers
The purpose of the balance sheet
to report the financial position (assets, liabilities and stockholders' equity) of a business at a point in time.
The purpose of the income statement
to present information about the revenues, expenses, and net income of a business for a specified period of time.
The statement of retained earnings
reports the way that net income and the distribution of dividends affected the financial position of the company during the period.
The purpose of the statement of cash flows
to summarize how a business's operating, investing, and financing activities caused its cash balance to change over a particular period of time.
the excess of total revenues over total expenses.
A net loss occurs when
total expenses exceed total revenues.
Equation for the income statement
Revenues - Expenses = Net Income
Equation for the statement of retained earnings is
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
Equation for the statement of cash flows
Cash flows from operating activities + Cash flows from investing activities + Cash flows from financing activities = Change in cash for the period
The main goal of accounting rules
to ensure that companies produce useful financial information for present and potential investors, lenders, and other creditors in making decisions in their capacity as capital providers.
The time period assumption
assumes that the long life of a company can be divided into shorter time periods, such as months, quarters, and years.
Accrual basis accounting
requires recording revenues when generated (by fulfilling the performance obligation promised to the customer) and expenses when incurred, regardless of the timing of cash receipts or payments.
Cash basis accounting
records revenues when cash is received and expenses when cash is paid.
The first question answered by the revenue recognition principle is...
The second question answered by the revenue recognition principle is... How much?
If a contract involves more than one performance obligation the total price is split by...
referring to the prices of each service sold separately.
The expense recognition ("matching") principle requires that...
expenses be recorded when incurred in earning revenue.
Items on the income statement relate only to the ___________ period and do not have a lingering financial impact beyond the current period.
Balance sheet items __________ to have a financial impact beyond the end of the current period.
Recommended textbook explanations
Introduction to Managerial Accounting
Eric W. Noreen, Peter C. Brewer, Ray H Garrison
Horngren's Cost Accounting: A Managerial Emphasis
Madhav V Rajan, Srikant M. Datar
Accounting: What the Numbers Mean
David H Marshall, Wayne W McManus
Charles T. Horngren
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