How can we help?

You can also find more resources in our Help Center.

103 terms

Financial Accounting Exam 1

STUDY
PLAY
accounts payable
a liability backed by the general reputation and credit standing of the debtor
accounting
the information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers
accounting equation
Assets= Liabilities + Owners' Equity
asset
an economic resource that is expected to be a benefit in the future
balance sheet
list of an entity's assets, liabilities, and owners' equity as of a specific date
board of directors
group elected by the stockholders to set a policy for a corporation and to appoint its officers
cash
money and any medium of exchange that a bank accepts at face value
corporation
a business owned by stockholders. a corporation is a legal entity, an "artificial person" in the eyes of the law
current asset
an asset that is expected to converted into cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year
current liability
a debt due to be paid within one year or within the entity's operating cycle
deficit
negative balance in retained earnings caused by net loss over a period of a year
dividends
distributions by a corporation to its stockholders
entity
an organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit
ethics
standards of right and wrong that transcend economic and legal boundaries. ethical standards that deal with the way we treat others and restrain our own actions because of the desire, expectations, or rights of others, or with our obligations to them
expenses
decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues
fair value
the amount that a business could sell an asset for, or the amount that a business could pay to settle a liability
financial accounting
the branch of accounting that provides information to people outside of the firm
financial statements
business documents that report financial information about a business entity to decision makers
financing activities
activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows
generally accepted accounting principles
accounting guidelines, formulated by the financial accounting standards board, that govern how accounting is practiced
going-concern assumption
holds that the entity will remain in operation for the foreseeable future
historical cost principle
principle that states that assets and services should be recorded as their actual cost
income statement
a financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period
investing activities
activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows
liability
an economic obligation payable to an individual or an organization outside of the business
long-term debt
a liability that falls due beyond one year from the date of the financial statements
managerial accounting
the branch of accounting that generates information for the internal decision makers of a business, such as top executives
merchandise inventory
the merchandise that a company sells to customers
net income
excess of total revenues over total expenses
net loss
excess of total expenses over total revenues
note payable
a liability evidenced by a written promise to make a future payment
operating activities
activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows
owners' equity
the claim of owners of a business to the assets of the business
paid-in capital
the amount of stockholders' equity that stockholders have contributed to the corporation
partnership
an association of two or more persons who co-own a business for profit
proprietorship
a business with a single owner
retained earnings
the amount of stockholders equity that the corporation has earned through profitable operation and has not given back to stockholders
revenues
increase in retained earnings from delivering goods and services to customers or clients
statement of cash flows
reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing
statement of retained earnings
summary of the changes in retained earnings of a corporation during a specific period
stock
shares into which the owners' equity of a corporation is divided
stockholders' equity
the stockholders' ownership interest in the assets of a corporation
account
the record of the changes that have occurred in a particular asset, liability, or stockholders' equity during a period. the basic summary device of accounting.
accrued liability
a liability for an expense that has not yet been paid by the company
chart of accounts
list of a company's accounts and their account numbers
credit
the right side of an account
debit
the left side of an account
journal
the chronological accounting record of an entity's transactions
ledger
the book of accounts and their balances
posting
copying amounts from the journal to the ledger
transaction
any event that has a financial impact on the business and can be measured reliably
trial balance
a list of all the ledger accounts with their balances
account format
a balance sheet format that lists assets on the left and liabilities and stockholders' equity on the right
accrual
an expense or revenue that occurs before the business pays or receives cash
accrual accounting
accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash or not
accrued expense
an expense incurred but not yet paid in cash
accrued revenue
a revenue that has been earned but not yet received in cash
accumulated depreciation
the cumulative sum of all depreciation expense from the date of acquiring a plant asset
adjusted trial balance
a list of all the ledger accounts with their adjusted balances
book value
the asset's cost minus accumulated depreciation
cash-basis accounting
accounting that records only transactions in which cash is received or paid
classified balance sheet
a balance sheet that shows current assets separate from long-term assets, and current liabilities separate from long-term liabilities
closing the books
the process of preparing the accounts to begin recording the next period's transactions.
closing entries
entries that transfer the revenue, expense, and dividends balances from the respective accounts to the retained earnings account
contra account
an account that always has a companion account whose normal balance is opposite that of the companion account
current ratio
current assets divided by current liabilities. measures a company's ability to pay current liabilities with current assets
debt ratio
ratio of total liabilities to total assets. states the proportion of a company's assets that is finalized with debt
deferral
an adjustment for which the business paid or received cash in advance.
depreciation
allocation of the cost of a plant asset to expense its useful life
liquidity
measure of how quickly an item can be converted to cash
matching principle
the basis for recording expenses. directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during the same period
multi-step income statement
an income statement that contains subtotals to highlight important relationships between revenues and expenses
operating cycle
time span during which cash is paid for goods and services that are sold to customers who pay the business in cash
permanent accounts
assets, liabilities, and stockholders' equity accounts that are not closed at the end of the period
prepaid expense
a category of miscellaneous assets that typically expire or get used up in the near future
revenue principle
the basis of recording revenues; tells accountants when to record revenue and the amount of revenue earned
time-period concept
ensures that accounting information is reported at regular intervals
unearned revenue
a liability created when a business collects cash from customers in advance to earning the revenue
audit
a periodic examination of a company's financial statements and the accounting systems, controls, and records that produce them. audits may be either external or internal.
bank collections
collection of money by the bank on behalf of a depositor
bank reconciliation
a document explaining the reasons for the difference between a depositor's records and the bank's records about the depositor's cash
bank statement
document showing the beginning and ending balances of a particular bank account listing the month's transactions that affected the account
budget
a quantitative expression of a plan that helps managers coordinate the entity's activities
cash budget
a budget that projects the entity's future cash receipts and cash disbursements
cash equivalent
investments such as time deposits, certificated of deposits, or high-grade government securities that are considered so similar that they are combined with cash for financial disclosure purposes on the balance sheet
check
document instructing a bank to pay the designated person or business the specified amount of money
computer virus
a malicious program that enters a company's computer system via email or other means and destroys program and data files
deposits in transit
a deposit recorded by a company, but not yet by its bank
electronic fund transfer
system that transfers cash by electronic communication rather than by paper documents
encryption
mathematical rearranging of data within an electronic file to prevent unauthorized access to information
exception reporting
identifying data that is not within "normal limits" so that managers can follow up and take corrective action.
fidelity bond
an insurance policy taken out on employees who handle cash
firewall
an electronic barrier, usually provided by passwords, around computerized data files to protect local area networks of computers from unauthorized access
fraud
an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party
fraud triangle
the three elements that are present in almost all cases of fraud. these elements are motive, opportunity, and rationalization on the part of the perpetrator
internal control
organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records
lapping
a fraudulent scheme to steal cash trough misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up.
lock-box system
a system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity's mail system
misappropriation of assets
fraud committed by employees by stealing assets from the company
nonsufficient funds check
a check for which the payer's bank account has not enough money to pay the check
operating budget
a budget of future net income. projects a company's future revenue and expenses.
outstanding checks
a check issued by the company and recorded by its books but not yet paid by its bank
password
a special set of characters that must be provided by the user of computerized program or data files to prevent unauthorized access to those files